Citi has filed a legal complaint against Wachovia and Wells Fargo, seeking a total in $60 billion of damages, after the latter two banks said last week they had agreed to Wachovia being taken over by Wells Fargo, dramatically overturning a deal Citi had to buy Wachovia.

However, later yesterday, Citi and Wells Fargo were reported to have agreed a truce until lunchtime today in an effort to agree a deal, to be brokered by the US Federal Reserve, according to the Financial Times.

The three banks involved in the dispute oversee large wealth management operations. Wells Fargo and Wachovia, in contrast to Citi, are predominantly domestic players. The deal comes at a time when Wachovia, like Citi and many other banking groups, has suffered losses because of the credit crunch.

In its legal complaint statement, Citi said: "In the complaint brought on Saturday 4 October and filed with the Supreme Court of the State of New York today, Citi is seeking more than $20 billion in compensatory damages and more than $40 billion in punitive damages from Wells Fargo for tortious interference with Citi's contract with Wachovia.” 

Wells Fargo and Wachovia could not be immediately reached for comment.

On a statement on its website on 5 October, Wachovia said: “Wachovia does not believe [the court’s] order has any effect on the validity of the Wells Fargo agreement with Wachovia. Wachovia continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid.  The agreement is in the best interests of shareholders, employees, creditors and retirees as well as the American taxpayers and it imposes no risk to the FDIC fund.”

Citi said it was “seeking relief from Wachovia for its bad faith breach of that contract”.

On 29 September, Citi and Wachovia announced a deal in which Citi would buy all of the banking subsidiaries of North Carolina-based Wachovia. On Friday, however, Wachovia announced it would be taken over by Wells Fargo for $15.1 billion.

In its statement yesterday, Citi said: "Seven days ago, in the hours before the markets opened, Citi agreed to the government's request to assist with a rescue of Wachovia after Wells Fargo walked away from Wachovia.  This was always a deal Citi wanted rather than one we needed.”

It continued: “We were and remain very excited about this transaction and how it will benefit the clients and shareholders of Citi and Wachovia, as well as help preserve the stability of the financial system.  The Citi/Wachovia transaction would have been signed and announced on Friday, 3 October if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors."

Citi said that at the time the Wachovia/Wells Fargo transaction was announced, Citi was finalising the agreements required to consummate its FDIC-assisted open bank transaction with Wachovia. Citi reiterated that it has been providing liquidity and market support to Wachovia since the day of the announcement.

“Had an agreement between Citi and Wachovia not been reached on September 29, Wachovia would have failed the following day and the debt issued by its holding company would have collapsed, with potentially devastating implications for the stability and security of the financial markets.”