The bold gambit that could reorder American banking began with the chirp of a cellphone in Charlotte, N.C.
It was just after 9 p.m. on Thursday, and Robert K. Steel, the chief executive of the Wachovia Corporation, listened to startling news on his phone as he stepped off a plane from New York: Wells Fargo & Company was plotting to wrest his stricken bank from Citigroup.
Only four days earlier, assisted by federal regulators, Mr. Steel had agreed to sell Wachovia to Citigroup for a fire-sale $1 a share. Wells Fargo had walked away, and Richard M. Kovacevich, its chairman, had called to wish Mr. Steel good luck.
But now Mr. Kovacevich was on the line with a far sweeter deal, one worth about $15 billion— seven times what Citigroup was offering.
The call set in motion another game of brinkmanship in a year of extraordinary Wall Street showdowns. At stake is the control of one of the nation’s largest retail banking businesses— a prize that will transform the winner into one of the few giants to emerge from the wreckage of the industry. For Wells Fargo, which is based in San Francisco, Wachovia would expand its reach across the nation. Citigroup, which is based in New York, wants the bank for its large retail operations.
The battle has also drawn in federal regulators, who had pushed the teetering Wachovia into the arms of Citigroup but are now seeking to limit taxpayer exposure. The reversal might make it more difficult for the government to broker future rescues. Citigroup is weighing a lawsuit that would claim a breach of contract.
In the wings is Warren E. Buffett, the largest shareholder of Wells Fargo, who has emerged as the go-to financier for several prominent companies that have come under siege during the credit crisis.
After two hours of debate, the board concluded that Wells Fargo’s offer was too good to pass up. Wells Fargo was offering to buy all of Wachovia, whereas Citigroup had proposed buying only part of it. Also, Wells, unlike Citigroup, was not seeking government support. And then there was the money.
The board voted in favor of the offer, and, at approximately 2:15 a.m., Mr. Steel placed an awkward call to Mr. Pandit at Citigroup. The deal, he told him, was off.
Fifteen minutes later, Mr. Pandit alerted his lawyers and top lieutenants and summoned them to prepare for battle. They met at the law offices of Davis Polk & Wardwell. Groggy, one Citigroup executive forgot his corporate ID card.
In the early hours of Friday morning, Wachovia executives learned that Sheila C. Bair, the head of the Federal Deposit Insurance Corporation, which had pressed for the Citigroup deal, would not stand in the way of the new agreement with Wells Fargo, as it would involve no risk to taxpayers.
“Neither Chairman Bair nor any person at the F.D.I.C. in any way initiated or solicited this bid from Wells Fargo,” an F.D.I.C. spokesman said on Friday. “When asked for our views, we said that we would not object” because the agency does not have the authority.
Other federal regulators said that they would not block Well Fargo’s offer while they reviewed the proposal.