It's on. Wellsachovia is here.

Citigroup (NYSE:C) gave up its fight with Wells Fargo (NYSE:WFC) over what remains of Wachovia (NYSE:WB), which all but seals the fate of what seems to be the only free-market merger deal we've seen in months. For better or worse, Wachovia will now become Wells Fargo's newest child.

If the original Wells Fargo deal is upheld, Wachovia shareholders will get $7 per share, or nearly twice where shares closed Thursday afternoon. For once, a shard of good news coming out of financial markets -- hallelujah!

Citi's surrender marks a victory not just for Wachovia shareholders, but for taxpayers as well. Citigroup's original offer had the FDIC picking up all of Wachovia's losses after the first $42 billion, whereas Wells Fargo is taking on all the risk by itself. Let's be honest, with how flummoxed the banking world is today, the FDIC has enough to worry about. Let Wells Fargo take on the risk, and it's one less victim the FDIC has to lose sleep over.

We may never know, but odds are Citi abandoned its bid after it realized there was no way it could compete with Wells Fargo's bid. With Citi's stock sitting at its lowest levels since 1996, it doesn't have an inch of bargaining power it can use to sweeten its bid. To be blunt, now that both Washington Mutual and Wachovia are out of the picture, Citigroup is one of the sketchiest banks out there.

Nonetheless, Citi's defending its defeat by pulling a "fine, we didn't want it in the first place" move. The Wall Street Journal cited the always-helpful "person close to Citigroup" as saying Citi ditched the bid because Wachovia's assets were "even worse than we thought," and that they were bidding for assets that "turned out to be worthless and dramatically overvalued." Compare that to a lawsuit a few days ago where Citi demanded it was owed $60 billion after being outbid, and Citi appears to be either extremely confused or downright lying.

What's this all mean for Wells Fargo? As is usually the case in market shakeouts, consolidation among the last remaining survivors turns the relatively strong into market dominators. In this case, Wells Fargo, Bank of America (NYSE:BAC), and JPMorgan Chase (NYSE:JPM) appear to be the three amigos that will all but control the banking world over the next few years and emerge as the leaders ... assuming we ever emerge from this mess.

Hang in there, Fools.

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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.