Wells Fargo & Co. (WFC), locked in a heated dispute with Citigroup Inc. (C) over an acquisition of Wachovia Corp. (WB), seemed to have the advantage Monday morning, following a court ruling in its favor and the issuance of press statements by Wachovia supporting its offer. Federal officials, however, may force both Wells and Citi to agree to split up Wachovia, according to various published reports. Wells Fargo put in its own offer for Wachovia on Friday after officials at the Federal Deposit Insurance Corp. had pushed a deal involving the sale of Wachovia’s banking operations to Citi earlier in the week. Unlike the government deal, which was the FDIC backstop the deal and involved only Wachovia’s banking operations, Wells Fargo bid a higher amount to acquire all of Wachovia. On Saturday, State Supreme Court Justice Charles Ramos had ruled to temporarily block Wells Fargo’s acquisition of Wachovia, a move touted by Citi and immediately discounted by Wachovia as having no real effect on the planned sale of the company. “Wachovia continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid … Under that agreement Citigroup is always free to make a superior offer to Wachovia,” said Wachovia in a statement released Sunday. Wells Fargo vowed to press-on with its agreement to takeover Wachovia on Sunday, as well, as an appellate court overturned the earlier injunction and allowed its efforts to proceed. Following the latest ruling, the Wall Street Journal reported Monday morning that the U.S. Federal Reserve was working to broker an agreement between both Citi and Wells Fargo that would result in a split of Wachovia — allowing each suitor to acquire portions of Wachovia. According to sources close to the Wall Street Journal, such plans of a split would not require financial assistance from the government, although it was unclear who might get what under a so-called “carve-up” scenario. Sources told HW that the Fed had grown increasingly concerned over the battle for Wachovia given current market conditions and instability. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade. Editor’s note: To contact the reporter on this story, email [email protected].