When Citigroup (NYSE:C) made a run for Wachovia (NYSE:WB) earlier in the week, it wasn't the only bank interested in picking up the pieces of banking's latest victim. Wells Fargo (NYSE:WFC) had also shown interest, and this morning we're seeing how much fight it had left in it.

To be exact, seven times the fight Citigroup had.

This past month has been stuffed with more bewildering news than most comic books contain, so I guess this shouldn't come as much of a surprise: Wells Fargo made an out-of-the-blue all-stock bid for Wachovia at $7 per share -- seven times the measly buck Citi offered earlier in the week. Citigroup isn't too happy about the sneaky bid, and is considering a lawsuit against both Wachovia and Wells Fargo, and could come out with a sweetened offer. Let the battle begin!

This seems a little like JPMorgan Chase's (NYSE:JPM) original $2-per-share offer for Bear Stearns, only to come back later saying "$2 not enough? How about $10? It's a steal either way. Whatever ..."

Admittedly, comparing Citi's and Wells' offers isn't really apples-to-apples; Wells Fargo is buying the whole shebang, while Citi left Wachovia shareholders a few scraps, such as the brokerage and asset management business, where Citi's already strong.

What this means for the market
Wells' bid for Wachovia can be seen as a big step in the right direction, seeing how it:

  • Doesn't need a government backstop to purchase the company, as Citi needed. Free markets came out ahead, for once.
  • Offers shareholders what they deserve, acknowledging there's still some value left in the company, not just a token $1-per-share offer.
  • Reminds the market that the private sector isn't dead -- when bargains arise, there are still some takers.

That's likely a good part of why the market's on a roll this morning, even though a host of other negative factors like job losses should have soured the mood. The financial system has been completely devoid of confidence lately (for good reason), worrying about the fate of the $700 billion plan.

For a few lucky banks like Wachovia, help comes early, but Wells' bid certainty doesn't turn the tide on the bailout front enough to make Hank Paulson surrender. There're plenty of banks out there -- from small banks like National City (NYSE:NCC) and Fifth Third (NASDAQ:FITB) to behemoths like Bank of America (NYSE:BAC) and, yes, Citigroup, that are either not interesting enough or too big to be acquired or bailed out by anyone short of Uncle Sam himself. Despite this morning's news, bailout talk should remain alive and well.

What do you think about Wachovia's future? All options could be on the table, with a bidding war, fallout, or bailout, taking shape in the coming weeks. Take a moment to weigh in via our Fool Poll below.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Fool has a disclosure policy.