Citigroup, Wachovia, Wells Fargo put legal fights on hold

— -- Citigroup, Wells Fargo and Wachovia agreed to "a standstill of all formal litigation" and to "cease any formal discovery activities" until Wednesday noon, according to statements by the banks.

Federal Reserve officials are brokering the talks that will decide Wachovia's fate, with the Federal Deposit Insurance Corp. and the Treasury Department's Office of the Comptroller of the Currency stepping in when needed.

A government official, who asked not to be identified because the talks are confidential, says that regulators are anxious about the financial markets, and would like to see the Wachovia deal settled soon.

Wachovia had agreed last week to sell its retail, corporate, investment banking and wealth management operations — but not the entire company — for $2.1 billion to Citigroup, with the government absorbing some of Wachovia's mortgage losses.

But on Friday, Wachovia agreed to be acquired by Wells Fargo for $15 billion. The Wells Fargo deal would have no government guarantee, but Wells Fargo could receive tax breaks from writing down some loan losses.

Last week's fallout among the banks led to a weekend of frenzied legal sparring in state and federal courts.

A New York state judge agreed with Citigroup and blocked the sale of Wachovia, but a state appellate court overturned that ruling.

On Monday, Citigroup filed a $60 billion lawsuit in New York state court against Wachovia and Wells Fargo, accusing Wells Fargo of interfering with Citigroup's offer and accusing Wachovia of breach of contract.

Analysts say that regulators, who clearly do not want a prolonged legal battle while the financial markets are in turmoil, are forcing the banks' hands.

"They don't want Wachovia sitting in limbo while these two companies duke it out in the courts," says analyst Joe Morford at RBC Capital Markets.