Vikram Pandit, CEO of Citigroup (C), should be so lucky as to have Wells Fargo (WFC) steal the buyout of Wachovia (WB) from him. Citi has gone into court asking $60 billion in damages because it feels it was robbed. It wants all of those Wachovia assets and the huge retail banking network that comes with them.

What Citi would also get is a tremendous Pandora’s Box of bad assets and toxic paper. The FDIC was willing to backstop some of this, but with the financial and mortgage markets falling apart, those guarantees may not be enough.

The Well Fargo plan is even less sane. It proposes to pay $16 billion for Wachovia and take it with no guarantees from the FDIC. Even with Paulson’s bailout plan in place, the contents of the Wachovia bank vault could drag WFC down.

Onw possible solution to the stand-off is that Wells Fargo would take 75% of the Wachovia asset base and Citi would take the rest. At the same time Pandit’s bank is foolish enough to be looking for partners to finance its proposed buyout. According to The Wall Street Journal, "Looking for added leverage in the talks, Citigroup on Tuesday was trying to line up other companies, including non-banks, to join its bid for Wachovia’s branch network." That would drag third parties into what may well become a disastrous transaction.

There is a reason the Citi and Wells Fargo shares sold off yesterday after being up when their plans to buy Wachovia were initially announced.

The stock market hates the Wachovia deal because its balance sheet contains nitroglycerin.

Citi and Wells Fargo would both be better off letting Wachovia fail and picking up pieces from the wreckage.

Douglas A. McIntyre

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