Wells Fargo in a Deal to Buy Wachovia

In a stunning reversal, the Wachovia Corporation said early Friday that it planned to be acquired by a rival bank, Wells Fargo & Company, for about $15.1 billion in stock.

The announcement came four days after Citigroup believed that it had cemented a deal with Wachovia to buy most of its banking operations for $1 a share or $2.2 billion in a deal brokered by federal regulators. With Wachovia on the brink of collapse, the government agreed to cover any losses above $42 billion, an indication of the urgency of regulators to get a deal done.

But Wachovia has now apparently rejected the Citigroup deal in favor of Wells Fargo. That deal calls for Wells Fargo to buy all of Wachovia for $7 a share and requires no assistance from the federal government. Wachovia customer deposits would be protected in both deals.

Still, the agreement requires the approval of Wachovia shareholders and regulators. In an announcement Friday, the Federal Deposit Insurance Corporation, which brokered the Citigroup-Wachovia deal, said that it “stands behind its previously announced agreement with Citigroup.”

Officials from the Federal Reserve, Treasury Department and the Office of the Comptroller of the Currency were all involved in original Citigroup-Wachovia deal. The Fed and the comptroller’s office said in a joint statement that they had not yet reviewed the proposal “and the issues that it raises.”

Citigroup executives learned that its deal was being scuttled early Friday morning after Wachovia’s advisers stopped taking their phone calls, according to people briefed on the transaction. The move left Citigroup executives fuming, and they are weighing their legal options.