WASHINGTON — Wells Fargo & Co.'s surprise attempt to upend the Federal Deposit Insurance Corp.'s deal to sell most of Wachovia Corp. to Citigroup Inc. could complicate the agency's efforts to save other troubled banks, observers said Friday.

But there may be little that regulators can do about it.

If the dispute winds up in a protracted legal battle, that could have an important impact on the tactic the FDIC used to facilitate the deal. The agency turned to a rarely used tool — open bank assistance — to sell Wachovia's deposits and most of its assets to Citi. Many considered the deal to be final when it was announced Monday morning.

Instead, as Citi pumped liquidity into Wachovia and prepared to take over its banking operations, Wells continued to work on its own bid to take over the Charlotte company without government assistance. If Wells' bid is approved, future bidders may think twice about taking the steps Citi did in a similar situation, observers said.

"For regulators, it complicates their job," said Jaret Seiberg, a policy analyst at Stanford Group Co. "It could make it more difficult to find suitors for troubled institutions. The suitor would have to worry that after they stabilize the institution that they are not going to be able to consummate the transaction."

Other analysts agreed, saying the Wells move cast a spotlight on open bank transactions, which are complicated to begin with and have not been used since 1992.

"While open bank deals nominally look sweet, I think anybody looking through them would have to take into account what Wells did and pay more attention to the constraints placed by Congress on such deals," said Karen Shaw Petrou, managing director of Federal Financial Analytics.

The public policy point was not lost on Citi, which began using it as an argument for regulators to scrap the Wells bid.

"No one will step in to help troubled banks if there is no confidence in the government-assisted process to deal with these institutions," according to a memo circulated by Citi staff.

Several observers said Wells was essentially cashing in on the stability at Wachovia that was forged by the FDIC deal and confusing the public in the process.

"Wells is now taking advantage of the fact that the situation has stabilized because they have a solution," said Gil Schwartz, a former Fed lawyer who now works in private practice. "People are just going to say, 'Wait a minute. Five days ago, the government was giving away money, and now someone has come along and said we don't need any of your money.' "

The matter appears destined for court after Citi said Friday that Wachovia's agreement was a "clear breach" of an exclusivity agreement banning Wachovia from entertaining other suitors.

To many, the prospect of a lengthy court battle playing out against the backdrop of a crippling financial crisis could further erode confidence in the banking system. Such a scenario could force the government to intervene and pick a winner, a source close to the situation said.

"The government wants this resolved quickly and will take appropriate actions," the source said. "It's not good for anyone to keep it protracted."

Christopher Whalen, managing director at Institutional Risk Analytics, said "if Citi and Wells start suing each other," Wachovia "is going to be taken off the table. If this drags on" … the FDIC "will just take over the subsidiary banks and then hold an auction."

Regulators — who apparently did not learn of Wells' efforts until early Friday — were not saying much. The FDIC issued a brief statement, saying it stands behind the Citi deal, and the Office of the Comptroller of the Currency and the Federal Reserve Board issued a joint statement saying they are looking at "issues" related to Wells' bid.

The FDIC had to win the approval of President Bush, Treasury Secretary Henry Paulson, and Fed Chairman Ben Bernanke to proceed with the Citi-Wachovia deal. To learn days later that the ordeal was unnecessary and a private solution existed left observers perplexed.

The Wells bid "doesn't make the FDIC look very good," said L. William Seidman, a former FDIC chairman. "This development really is mind-boggling and it certainly shouldn't have happened."

Still, regulators may have few options. The Fed approves mergers of bank holding companies but has limited grounds for turning one down. With government money no longer on the table and no apparent antitrust concerns or violations of the Community Reinvestment Act, the Fed would be likely to approve it.

"I can't think of a reason why it wouldn't go," said Joseph Mason, a professor at Louisiana State University and a former economist at the Office of the Comptroller of the Currency.

"Shareholders are happy and the FDIC of course now has no reason to force a marriage with Citi."

There were upsides to the Wells move. For one, the FDIC — which was on the hook for losses at Wachovia after they totaled $42 billion — has no liability under the Wells bid. That alone may be reason for regulators to accept the Wells offer.

Some also argued the deal could be seen as a positive by the marketplace because it showed there was a private market for Wachovia and government assistance was unnecessary.

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