A settlement may be close in the battle of whether Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC) ends up owning Wachovia (NYSE: WB). Wells Fargo came in with what was considered a winning bid after Citi thought it already had a deal.

An appellate court has ruled against a stay requested by Citi. Most investors and the Wachovia board appear to think the Wells Fargo deal is better for investors. It also does not involve money from the FDIC which the Citi purchase did. That has to be attractive to the government.

To get the fighting over, it appears that Wells Fargo will get about 75% of the WB deposits and Citi will get the rest. According to Reuters, "Analysts said it may make sense for Citigroup to get at least some assets in the transaction because the bank worked with the FDIC on the deal and supported Wachovia financially last week."

But, with the banking industry falling apart, does either bank want Wachovia? Its assets, especially mortgage-backed paper, could be falling in value every day. Some bank stocks were down as much as 20% yesterday on concerns about their liquidity and ability to stay in business.

Citi and Wells Fargo may be better off letting Wachovia fail and picking up the pieces at a fire sale. It has become that dangerous to be a big US bank taking on assets which could potentially have huge problems. Honoring deals has become a thing of the past. Fear has trumped honor

Douglas A. McIntyre is an editor at 247wallst.com.