Citigroup Inc. has backed out of the fight over Wachovia Corp., conceding the deal to Wells Fargo & Co.

Citi announced Thursday evening that it had reached no agreement with San Francisco-based Wells Fargo following several days of discussions. “The dramatic differences in the parties’ transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement,” it said in a released.

In the meantime, Wells Fargo is proceeding with its merger with Charlotte, N.C.-based Wachovia as a whole company transaction, requiring no financial assistance from the Federal Deposit Insurance Corporation or any other government agency. It will acquire all of Wachovia and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits.

That deal, announced just four days after Citigroup thought it had won Wachovia, now is valued at about US$11.38 billion.

Wells Fargo has submitted its application to the Federal Reserve Board seeking expedited approval of the merger and the share exchange agreement previously entered into between Wachovia and Wells Fargo. Under the share exchange agreement, Wachovia is issuing Wells Fargo preferred stock that votes as a single class with Wachovia’s common stock representing 39.9% of Wachovia’s voting power. It will acquire all outstanding shares of common stock of Wachovia.

Wells Fargo chairman Dick Kovacevich said that the two companies have a firm, binding merger agreement, are confident the merger will be completed, that it will keep Wachovia intact and create significant value for Wachovia and Wells Fargo shareholders. Wells Fargo will record Wachovia’s credit-impaired assets at fair value.

“Credit teams at Wells Fargo have had an opportunity to work with their counterparts at Wachovia,” said Kovacevich. “Much of Wachovia’s portfolio involves businesses where Wells Fargo has a significant market presence, operating history and expertise. We have had experience with such businesses through a variety of credit cycles. Given our broad based operating expertise, and specific understanding of these individual businesses we believe we have adequately evaluated the risks inherent in the portfolios as of the time of this merger agreement.”

In addition, Kovacevich said Wells Fargo is pleased that Citigroup announced that it is no longer seeking that the Wells Fargo-Wachovia merger be enjoined. “We believe that that is the correct and right decision for our country and our citizens and the health of our already stressed financial system, as well as our and Wachovia’s respective shareholders and stakeholders,” said Kovacevich.

Citigroup said it believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisors and others for breach of contract and for tortious interference with contract. It plans to pursue these damage claims vigorously on behalf of its shareholders. However, Citigroup has decided not to ask that the Wells Fargo-Wachovia merger be enjoined.

“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 said.

Citi CEO Vikram Pandit said, “We did not seek the Wachovia transaction; Wachovia brought it to us. Our focus remains on capitalizing on our global strengths. We will continue to apply the same discipline we employed in this and other recent transactions to future acquisition opportunities. We will redouble the focus on our five core businesses and continue to demonstrate strong capital and risk management supported by continuously improving expense control. We are committed to affirming Citi’s position as a leading global financial institution.

The Federal Reserve acknowledged the efforts of Citigroup and Wells Fargo to reach an accord. The Fed said it will immediately begin consideration of the filings submitted by Wells Fargo for approval to acquire Wachovia.