In a single stroke, Wells Fargo & Co. achieved what many thought impossible in recent weeks: It rescued a troubled bank without putting billions of taxpayer dollars at risk.

On Friday, in a dramatic turn of events that could bolster public confidence in the banking sector, Wells Fargo's board of directors approved a $15.1 billion takeover of Charlotte, N.C.-based Wachovia Corp. in a deal that requires no government assistance and scuttles a federally backed deal between Wachovia and Citigroup.

Citigroup threatened legal action Friday, and may sweeten its bid for Wachovia. That could touch off a takeover battle for a bank that, just a week ago, appeared on the verge of failure and was desperate for government assistance.

"This is a huge confidence-builder," said Derek Ferber, a bank analyst with SNL Financial in Charlottesville, Va. "It shows that private banks can broker their own deals without the government's help."

The deal, which was approved by boards of both banks, also marks a dramatic turning point for San Francisco-based Wells Fargo, which just a week ago appeared to have given up on its quest for Wachovia. Wells Fargo, Minnesota's second-largest private employer with more than 20,000 workers, had almost reached a deal for the bank last weekend, but Chairman Dick Kovacevich said the bank didn't want to rush into a deal until it had completed all of its due diligence. So a week after Citigroup agreed to pay about $2.1 billion for Wachovia's banking operations only, Kovacevich swooped in and offered more than seven times that for the entire company.

Because Wells Fargo's shares closed down 60 cents Friday, the value of Wells Fargo's all-stock offer for Wachovia has fallen from its initial $7 a share to $6.88 a share. That's a 76 percent premium to Wachovia's closing share price of $3.91 on Thursday. Citigroup's offer was about $1 a share.

But analysts said that the biggest difference between the offers is that Wells Fargo's bid does not include government assistance. Citigroup had agreed to shoulder as much as $42 billion in losses on Wachovia's $312 billion pool of loans; while the Federal Deposit Insurance Corp. (FDIC) would absorb any losses beyond that.

"It's still a good deal for Wells Fargo and a great deal for Wachovia," Morningstar analyst Matthew Warren said.

The deal means Wells Fargo goes from being a large regional bank with a deep presence in the Midwest and West to a truly national institution, with 6,675 branches and more than $1.4 trillion in assets -- behind only Bank of America, Citigroup and J.P. Morgan Chase & Co.

Kovacevich said in a prepared statement the deal was "a superior value to the previous offer."

But several bank analysts who cover Wells Fargo said that the bank may be saddling itself with a large loan portfolio loaded with risky mortgages that could go sour if the economy worsens. Some questioned the wisdom of proceeding without a government backstop, particularly when one was available to Citigroup.

Ferber, of SNL Financial, said he is concerned that Wells Fargo, which has more than 1,000 branches in California, is now "doubling down" on a state that has been particularly hard-hit by the housing slowdown. "Wells Fargo already makes a lot of home equity loans in that state," he said. "It's a bit troubling."

Wells Fargo said Friday that it expects to take a $74 billion hit on Wachovia's $498 billion loan portfolio.

The head of the FDIC said the agency is standing behind the Citigroup agreement, but that it is reviewing all proposals and will work with the banks' regulators "to pursue a resolution that serves the public interest."

Citigroup, which demanded that Wachovia call off its deal with Wells Fargo, said its agreement with Wachovia provides that the bank not enter into any transaction with any party other than Citi or negotiate with anyone else.

When asked if Citigroup would seek a court injunction to halt a Wells Fargo-Wachovia deal, a spokeswoman for Citigroup said, "We are exploring all options." She declined to comment further.

The fact that boards of Wells Fargo and Wachovia have already approved the deal make a bidding war unlikely, but some industry analysts are still not ruling out that possibility. Citigroup has also been hit hard by loan losses, and declining investor confidence in its financial strength has caused its stock to plunge by nearly a third since April. For Citigroup, a deal with Wachovia represents a prime opportunity to gain new deposits and bolster its balance sheet.

Citigroup "could have really used those deposits," analyst Warren said. "It wouldn't be surprising if they returned" with a new offer.

Regardless, Wells Fargo's bold move to make a bid without a government backstop likely is a "huge shot in the arm for market confidence," Anant Sundaram, a finance professor at Tuck School of Business at Dartmouth College, wrote in an e-mail to the Associated Press. "It is also a signal that market forces are capable of resolving some aspects of the crisis without undue congressional, and hence, taxpayer, intervention."

Chris Serres • 612-673-4308