Battle over Wachovia intensifies

Citigroup and Wells Fargo both want to buy Wachovia

US financial giant Citigroup has sued Wells Fargo and its takeover target Wachovia for $60bn (£34bn).

Citigroup said their agreement violated its earlier deal to buy Wachovia's banking operations.

Wachovia, the fourth biggest bank in the US and hit hard by the credit crisis, is keen to tie up what it sees as the better offer from Wells Fargo.

However, a compromise deal involving both suitors is still thought to be a possibility, reports say.

Earlier an appeal court had overturned an injunction that prevented Wells Fargo taking over Wachovia.

Citigroup had secured the New York court injunction to stop a late bid from Wells Fargo scuppering its own take over attempt.

Rival bid

Wachovia had been in danger of failure after its share price fell by more than 70% in the past 12 months.

Wells Fargo will continue working towards the completion of its firm, binding merger agreement with Wachovia Corporation Wells Fargo statement

Citigroup stepped in with a bid of $2.2bn (£1.3bn) in stock for Wachovia's banking activities.

The offer also covered $42bn of Wachovia's $312bn losses, with the Federal Deposit Insurance Corporation absorbing the rest.

Within days Wells Fargo came in with a rival bid of $15bn in an all-stock deal to buy all of Wachovia, stressing its proposal involved no government intervention or taxpayer risk.

Following the appeal court overrule, Wells Fargo announced: "We are pleased that the unfounded order entered yesterday has been vacated. Wells Fargo will continue working towards the completion of its firm, binding merger agreement with Wachovia Corporation."

If the deal goes through, the merged bank would have the biggest network of branches in the US.

Reports suggest, however, that the US Federal Reserve is pushing for a compromise deal, whereby both suitors divide Wachovia's network of 3,346 branches.

Citigroup would take over those in the north-east and mid-Atlantic regions, with Wells Fargo taking those in the south-east and California. Wells Fargo would also take over Wachovia's asset management and brokerage businesses.