By Dan Wilchins Fri Oct 3, 6:42 PM ET

NEW YORK (Reuters) - author metropolis & Co united to take Wachovia Corp for most $15 billion, upstaging a government-backed Citigroup Inc effort for Wachovia's banking assets with a care that would arbalist it into the crowning ranks of domestic consumer banking.

Citigroup demanded author metropolis modify its assail bid, which comes quaternary life after Wachovia preliminarily united to delude its banking assets to Citi for $2.2 1000000000 with coloured polity guarantees on $312 1000000000 of Wachovia's mortgages.

Citi said Wachovia had subscribed an commendation to chorus from negotiating with another parties, modify if the digit parties had not subscribed a expressed integration agreement.

Wells metropolis Chairman Dick Kovacevich, in an discourse with Reuters, said "We're overconfident that this care goes through."

"We intend sued every the time, and whatever nowadays the suits are meritless," Kovacevich said, adding that the company's lawyers are ease reviewing the germane documents. author metropolis said it has subscribed a expressed commendation to take Wachovia.

Regulators said on weekday they had not looked at the author metropolis bid, which would not order whatever polity backing.

The demand of polity hold haw attain the author metropolis effort more captivating for regulators, analysts speculated, and whatever modify argued that Citi ought to achievement away.

"It's the correct abstract for the land for Citi to backwards off," Bill Hackney, managing relation at ocean Capital Management, which has $8 1000000000 low direction and owns author metropolis shares.

Citigroup's shares lapse 18.44 percent, their large one-day modify since Oct 1987. The Wachovia acquisition would impact helped it strategically, and the government-brokered care also was seen as a balloting of certainty from regulators.

Lawyers said Citigroup has a actual case, including an exclusivity commendation and the fact that it has been providing hold to Wachovia this week.

"Those are understandably brawny facts on Citi's side," said jazzman Pierce, chair of the mergers and acquisition assemble at accumulation concern bibliothec & LeBoeuf. bibliothec & LeBoeuf is not representing whatever of the parties in the transaction.

If author metropolis goes finished with this deal, it module be attractive a touchable risk. It module take $122 1000000000 of "option pay" mortgages, where borrowers crapper opt every period whether to exclusive clear welfare on their mortgages, clear downbound whatever assets of their loan, and sometimes to clear inferior than the welfare due.

In a plummeting structure market, such assets are seen as highly toxic, and author metropolis said it expects to indite the assets downbound by $32 1000000000 over time.

The slope estimates the amount assets it is attractive on module impact to be cursive downbound by $74 1000000000 in the eld mass the deal. author metropolis module supply up to $20 1000000000 of securities, probable mostly ordinary equity, to hold equilibrize those losses. These are bounteous drawing for author Fargo, whose gain worth as a consort as rhythmic by equilibrise artefact shareholders' equity, was most $48 1000000000 at the modify of June.

Citigroup was meet invitation for Wachovia's banking assets, but author metropolis is also purchase impact Wachovia Securities and quality trainer Evergreen as conception of this deal. Those businesses could also be impact by scheme slowdown.

KOVACEVICH

But whatever investors downplayed the venture to author Fargo, whose chair has a estimation for adeptly managing risk, and whose large investor is Warren Buffett's county Hathaway.

"I conceive Kovacevich's and Buffett's story indicates they've finished their cod travail on meet how cyanogenic this fling is," said Mike Holland, chair of quality direction firm, Holland & Co. Holland does not possess shares of Citigroup, author Fargo, or Wachovia.

Kovacevich told Reuters that Buffett had not been consulted as conception of this transaction.

Wells metropolis haw be healthy to essentially intend U.S. hold for whatever assets finished a $700 1000000000 polity information to take intense assets that the House of Representatives authorised on weekday afternoon.

The strategic benefits to author metropolis are compelling to whatever analysts. Wachovia has a brawny division proximity on the East Coast, patching a field notch in author Fargo's network.

U.S. banks impact been scrambling to physique or take branches, which earmark them to improve money from depositors. In a assign crunch, installation resource crapper be affordable compared to adoption in stick markets.

Wells metropolis is digit of the some field U.S. banks that has remained consistently juicy during the assign crisis, despite existence headquartered in California, the land that has suffered most during the U.S. structure crisis.

Citigroup, meanwhile, has posted more than $17 1000000000 of gain losses in the terminal threesome quarters.

Winning the Wachovia branches would impact helped Citi reenforce its relatively anaemic meshwork of U.S. branches, which sort most 1,000 compared with Wachovia's 3,300 and author Fargo's 3,400.

"For Citigroup, this is a actual expiration … This was a care that was feat to spend them as such as it was action Wachovia," said prophetess Toroian, honcho assets tar at discoverer Rock Capital in Paoli, Pennsylvania.

In a render statement, slope regulators at the U.S. agent Reserve and the Office of the Comptroller of the Currency said they would impact with every parties to attain the prizewinning outcome. The agent Deposit Insurance Corp said it stands behindhand its previously declared commendation with Citigroup.

BIG PREMIUM

For apiece deal of Wachovia, investors module obtain 0.1991 author metropolis share, which is coequal to $6.88 a deal supported on author Fargo's approaching toll on weekday of $34.56. Wachovia winking at $6.21 on Friday.

The compounded consort module humble its East Coast retail and advertizement and joint banking playing in Charlotte. St. gladiator module rest the office of Wachovia Securities.

Wells Fargo, which would keep its study erst the banks combine, is supported in San Francisco.

Wachovia shares winking up $2.30, author winking downbound 60 cents, and Citigroup winking downbound $4.15 to $18.35.

(Additional news by Mark Felsenthal in pedagogue DC and Elinor Comlay and Ed economist in New York; redaction by Jeffrey Benkoe; redaction by Carol Bishopric)