Oct. 6--After a weekend of legal wrangling in New York over Wachovia's fate, Citigroup and Wells Fargo were negotiating Sunday night, under pressure from regulators, on a compromise that could essentially carve up the Charlotte bank among the two feuding buyers, the Wall Street Journal reported.

Under the leading plan, Citigroup would get Wachovia branches in the Northeast and mid-Atlantic regions and Wells Fargo would get branches in the Southeast and California, as well as Wachovia's asset management and brokerage businesses, the Journal reported. The Federal Reserve was pushing the discussions, the Journal reported, as it worried about the reaction of jittery investors today.

Wells Fargo and Wachovia declined comment on the report. Citi did not respond to a request for comment.

Meanwhile, in U.S. district court, Wachovia on Sunday asked a U.S. federal court judge to declare its merger with San Francisco-based Wells valid despite an earlier agreement with Citi. At a hearing Sunday in New York, U.S. District Court Judge John Koeltl said Wachovia "appears" to have been permitted to consider merger offers other than Citi's, but he did not make a decision. Another judge will take up the issue at a hearing scheduled for Tuesday.

The legal battle broke out after Wachovia agreed to a $15 billion sale to Wells Fargo early Friday, trumping a previously announced transaction between New York-based Citi and Wachovia that included assistance from the Federal Deposit Insurance Corp. Sunday's outcome appeared to give Wachovia the upper hand in the struggle only a day after Citi claimed a victory when a New York state judge extended an agreement that prevented Wachovia from talking to other suitors.

At stake is which company gets control of one of the nation's biggest banks and a major Charlotte employer. "All you can say right now is that there is a lot of uncertainty on the legal front," said Carl Tobias, professor at University of Richmond's law school, noting that actions outside court could supersede the legal fight.

Amid the legal wrangling, it's possible that new bids could emerge from Citi, Wells or other institutions. The current Wells offer appears to be the better one for Wachovia shareholders, but it's not clear which would be better for Charlotte in terms of layoffs and remaining operations. The latest possibility of Wachovia getting carved up would seem a worse outcome for the city.

By Rick Rothacker and Kirsten Valle

-----

To see more of The Charlotte Observer, or to subscribe to the newspaper, go to http://www.charlotteobserver.com.

Copyright (c) 2008, The Charlotte Observer, N.C.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

WB, C, 8710, WFC, NWS,