Feds Push Citigroup, Wells Fargo on Wachovia Deal

The Federal government is pushing Citigroup and Wells Fargo to reach an agreement tonight that would avoid a court battle over the two banks' fight for Wachovia, sources have told CNBC.

If a deal goes through as talks currently stand between Citigroup and Wells Fargo , Citigroup would receive between 20 percent and 25 percent of Wachovia's $440 billion in deposits.

Wells Fargo would receive the remainder of the firm, including the rest of Wachovia's deposits and its investment bank.

Negotiations to resolve the dispute remain fluid and could change at any time.

On Thursday, the Wall Street Journal reported that both Citigroup and Wells Fargo were surprised by the concentration of assets on Wachovia's books that they regard as low-quality.

Citigroup and Wells Fargoagreed Wednesday to extend their legal standstill in their fight for Wachovia until Friday morning, giving them more time to work toward a mutual agreement. But according to senior Citigroup executives, adeal could be reached as early as tonight.

Citigroup would like to acquire Wachovia's bank branches in the Northeast and Mid-Atlantic regions, these people say. (Learn more in the accompanying video.)

Two judges postponed court hearings on Wednesday in the battle over Charlotte, N.C.-based Wachovia.

New York State Supreme Court Justice Charles Ramos postponed a hearing to Tuesday, Oct. 14 from Friday on Citigroup's action to stop Wachovia and Wells Fargo merging, the judge's clerk said.

U.S. District Court Judge Lewis Kaplan postponed a hearing indefinitely into Wachovia's attempt in federal court to prevent Citigroup from stopping Wells Fargo, according to court documents. The hearing had been scheduled for Wednesday afternoon as the parties continued negotiations.

Wachovia has been hobbled by the mortgage crisis, but has a large network of branches.

On Sept. 29, Citigroup reach a preliminary agreement to buy Wachovia's banking assets for about $2.1 billion with partial government guarantees. However, Wells Fargo said on Friday it signed an agreement to buy all of Wachovia without any government intervention. That all-stock deal was worth about $15.1 billion at the time it was announced.

After the Wells Fargo announcement the battle for Wachovia moved to both state and federal courts over the weekend.

Citigroup is prepared to go forward with a lawsuit it filed against Wachovia and Wells if it can't reach a deal, the senior executives said. Citigroup claims its preliminary agreement prevented Wachovia from seeking or negotiating with other suitors.

Without the extension, the standstill agreement between the companies was set to expire at noon on Wednesday.

Wachovia was in considerable trouble when it agreed to the Citigroup deal early last week. Wachovia disclosed in court documents that it agreed to the acquisition "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.

- Reuters contributed to this report.