Wells officials wouldn't discuss details of cost cuts, but the bank said that within a couple of years it expected to shave $5 billion in annual expenses off the combined operating costs of the two institutions.
Wells Fargo agreed to buy all of Wachovia, whereas the Citigroup deal would have excluded Wachovia Securities, a big brokerage arm, and its mutual fund units.
Wachovia investors celebrated the deal, bidding up the bank's shares by $2.30, or 59%, to $6.21. Citigroup stock tumbled $4.15, or 18%, to $18.35. Wells Fargo slipped 60 cents, or 1.7%, to $34.56.
Wells said merger costs would total $10 billion. It estimated that it would take $74 billion in immediate write-downs and gradual increases to credit reserves to reflect the problems in Wachovia's nearly $500-billion hoard of loans.
The portfolio includes $122 billion in adjustable-rate mortgages originated by World Savings, a thrift once owned by Oakland's Golden West Financial Corp., which Wachovia acquired in 2006. Wells Fargo estimated that losses on those loans would total $32 billion.
Despite such heavy costs, Wells Fargo said it expected the Wachovia deal would begin to add at least 15% to its per-share earnings after two years.
Wells Fargo had been a participant in an auction for Wachovia run by the FDIC last weekend. Wells said it dropped out because it needed more time to crunch numbers.
That left Citigroup sitting alone with Wachovia and FDIC officials in New York on Sunday, with the regulators insisting that a deal had to be struck to avoid "systemic risk" to the financial system, according to two people close to the bidding, who were not authorized to speak publicly about it.
As part of the Wachovia-Citigroup accord, Wachovia signed a three-page "no shop" agreement pledging not to discuss deals with any other potential bidders -- an agreement that Citi said the Wells deal "clearly breached."
In a call with analysts, Wachovia Chief Executive Robert Steel declined to talk about the exclusivity agreement. But Wells Fargo Chairman Richard Kovacevich suggested that it had not been breached because Wells did not have any more discussions with Wachovia and instead just finished its analysis of the data it already had been provided.
One person close to Citigroup said the big New York bank already had begun discussions this week with Wachovia over the nuts and bolts of merging the two operations.
