As Citigroup Inc. takes its $60 billion Wachovia-related lawsuit against Wells Fargo & Co. into 2009, some are questioning its motives and raising concerns about the cost to its reputation if the suit fails.

Citi's legal preparations are in their fourth month, its legal fees are mounting, and analysts are increasingly convinced its quest is quixotic. But the company is adamant in its contention that Wells' 11th-hour purchase of Wachovia Corp. was underhanded. A spokesman this week reiterated that it will pursue "damage claims vigorously on behalf of our shareholders."

Few on Wall Street expect Citi to get all that it is seeking, if anything. But after a miserable 2008 in which it turned to the federal government for $45 billion in capital infusions, some say any kind of favorable court ruling could give it a badly needed boost.

Andrew Marquardt, senior research analyst at Fox-Pitt Kelton Cochran Caronia Waller LLC, said that, though Citi would obviously benefit financially if it prevails, he doubts the case will go to trial.

Patricia McCoy, a banking and finance law professor at the University of Connecticut, said "98% to 99% of civil suits" are settled out of court.

"So in this case, in all likelihood, the two sides will settle — and Citi will have to settle for substantially less — or the judge will dismiss the case and Citi will get nothing," Prof. McCoy said.

Mr. Marquardt said that if Citi fails to get a big payout, investors may view the case as a further diminishment of the company's stock value.

Gary B. Townsend, the chief executive of Hill-Townsend Capital LLC, said that the "market isn't expecting Citi to get $60 billion or even $1 billion."

"Short of a lot of money," Mr. Townsend said, "I don't see how this really helps Citi much. … It seemed to me at the time when Citi announced its offer that it was preposterous that it would even entertain that size of a merger, given its own problems and Wachovia's."

But Jeffery Harte, an analyst who follows Citi at Sandler O'Neill, says Citi may be trying to shore up its reputation with shareholders and the rest of the banking world. "If they got this to court and won, it would help improve the image of Citi management, change the perception that Citi wasn't as prepared for a major deal as they thought they were," Mr. Harte said.

Citi's suit was filed Oct. 4. It says Wells and Wachovia violated an exclusivity agreement that Citi reached with Wachovia on Sept. 29 when they struck their deal. Wachovia accepted a higher bid from Wells on Oct. 3.

When Citi announced its $2 billion government-assisted plan to buy Wachovia's banking operations, Vikram Pandit, its chief executive, called the deal "compelling" and "one of those high-return acquisitions." But when Wells made a higher offer that did not involve taxpayer money to close the deal, investors pummeled Citi's stock, reading it as a sign that Citi might not have been capable of a large acquisition without government help.

The deal would have given Citi a massive new funding source. Wachovia, though faltering on mortgage losses, still had more than $400 billion in deposits, a sum that would have tripled Citi's domestic deposit base.

Citi's shares tumbled 18% on Oct. 3, to $18.35. And though Citi lost ground most of the year, shedding 75% of its market value in 2008 after four consecutive quarterly losses, about 90% of its losses for the year came after the opening bell on Oct. 3.

Some say Citi has a case.

"I feel for Citigroup on this one," said Donald van Deventer, the CEO of the risk management specialist Kamakura Corp. in Honolulu. " In a perfect world, Wachovia's management would have, on their own, auctioned off the company to the highest bidder and created a fair contest. But clearly, the government determined there wasn't time for that, and the feds stepped in and forced a sale." Mr. van Deventer said he agrees with Citi's claim that by stepping up to buy Wachovia when it did, Citi gave Wachovia a lifeline until Wells came along.

Citi's suit contends: "Without our willingness to engage in this transaction, hundreds of billions of dollars of value would have been seriously threatened. We stood by while others walked away. Now, our shareholders have been unjustly and illegally deprived of the opportunity the transaction created."

It may be hard for Citi to back down.

"I think they think they had an appropriate deal that was undone and they are suing for the harm that was done to them," said Tim McTaggert, a partner at Pepper Hamilton LLP.

Robert Clarke, a senior partner at Bracewell & Giuliani LLP and a former comptroller of the currency, said: "Why give up any opportunity, even though their chances of winning might be slim? Why surrender now? I don't think continuing the lawsuit helps their cause if the motivation is saving face."

A lawyer who requested anonymity because he counts Citi as a client said it may be proceeding with the suit in the hope that something arises in the discovery process to help its case. "I think you never know what comes up in discovery in connection with a lawsuit, and there may very well be there are imprudent statements made by the representatives that may prove actionable," the lawyer said.

Citi is seeking $20 billion of compensatory damages and $40 billion of punitive damages. It declined to make an executive available to comment this week, but a spokesman, Mike Hanretta, said it believes it has "strong legal claims. " Mr. Hanretta said the suit is currently in a holding pattern as a judge considers various routine, pre-trial motions submitted by Citi and Wells. But he said Citi is planning for a trial.

Wells declined to comment. But like Wachovia's former executives, Wells has maintained that any deal Wachovia had with Citi had not been finalized, in writing, and that Wachovia was legally free to entertain competing bids. Wells stands by that argument.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.