Citigroup backed out of negotiations with federal regulators and Wells Fargo in its battle for Wachovia Corp. but vowed to have its day in court.

Citigroup said it is willing to complete its original deal with the Charlotte, N.C.-based bank. But while it is seeking damages for breach of contract, it has decided not to challenge the Wells Fargo-Wachovia deal in court. That paves the way for Wells Fargo to close its $11.7 billion stock deal. The Federal Reserve said it will start reviewing Wells Fargo's bid.

Wachovia, which employs about 4,100 people in the Richmond area, has about 25 percent of the retail banking market here. About 10,500 Wachovia employees work in Virginia.

"We're pleased Citigroup has abandoned its efforts to interfere with Wachovia's planned merger with Wells Fargo," Wachovia spokeswoman Christy Phillips-Brown said.

New York-based Citigroup said it believes it has strong legal claims against Wachovia, Wells Fargo and their officers and directors for breach of contract, and it plans to pursue its claims vigorously.

Citigroup came to the rescue of an ailing Wachovia when it agreed Sept. 29 to buy Wachovia's banking operations for $2.1 billion in a deal brokered by the Federal Deposit Insurance Corp.

Slammed over the past year by defaulting mortgages, Wachovia was in trouble. It said in court documents that it agreed to the acquisition with the understanding that its banking assets would be seized unless it accepted Citigroup's offer.

Four days later, San Francisco-based Wells Fargo stunned Citigroup by announcing that Wachovia's board had agreed to an $11.7 billion all-stock offer.