Wells Fargo is proceeding with its plan to buy Wachovia Corporation after Citigroup (C) announced it was ending negotiations with Wells Fargo (WFC) on the Wachovia (WB) transaction

Under the agreemeent, Wells Fargo will acquire all outstanding shares of common stock of the Charlotte, N.C.-based bank in a stock-for-stock transaction.

Wells Fargo Chairman Dick Kovacevich said in a statement that the merger is “simply an incredible fit that will result in an immensely strong, stable financial services company that will carry on Wachovia’s proud tradition of being one of the very best financial institutions in the world."

The combined company will have $1.42 trillion in assets, $787 billion in deposits, 48 million customers, $258 billion assets under management in mutual funds, according to Wells Fargo.

Citi said it “has strong legal claims” against the two banks and “plans to pursue damages vigorously” -- but it also said it doesn’t plan to ask that the Wells Fargo/Wachovia merger be stopped.

Citi said it has reached no agreement with Wells Fargo after several days of discussions about how to split up Wachovia.

“The dramatic differences in the parties’ transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement,” the Citi statement said.

The whole incident started when Wachovia was on the verge of failing nearly two weeks ago, and Citigroup stepped in to say it would take over some of the assets, with government assistance.

Then, several days later, Wells Fargo came in with an offer to buy Wachovia outright. That plan seemed better for Wachovia shareholders and U.S. taxpayers, but left Citi out in the cold. Still sentiment turned WFC’s way – a North Carolina court favored its buyout plan, and many analysts felt Citi didn’t have a leg to stand on.

But Citi has held its ground, issuing various lawsuit plans while still negotiating with the other two banks over a potential split of Wachovia.

Even in the press release, it said, “Citi believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisors and others… Citigroup plans to pursue these damage claims vigorously on behalf of its shareholders.

Citi said that it does not plan to ask that the WFC/Wachovia merger be stopped, but it also said that it “remains willing to complete” its own transaction with Wachovia.