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Citigroup Inc. walked away from its attempt to buy Wachovia Corp., handing victory to Wells Fargo & Co. in a struggle for the nation’s sixth-biggest bank.

Citigroup said today that it won’t interfere in Wells Fargo’s takeover, scrapping a $2.2 billion bid for part of Wachovia’s banking operation. Wells Fargo trumped Citigroup with a $15 billion bid for the entire company. Citigroup is suing for $60 billion in damages.

“Wells Fargo just won, lock, stock and barrel,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “I guarantee this is a done deal now.”

For San Francisco-based Wells Fargo, which stayed profitable amid the worst housing crisis since the Great Depression, the Wachovia purchase is the biggest since Norwest Corp. bought the old Wells Fargo 10 years ago and kept its name. Wells Fargo’s purchase includes a mortgage portfolio that’s expected to produce $74 billion of writedowns and losses.

“The opportunities the franchise brings to us over time more than compensates for those losses,” Chairman Richard Kovacevich said in an interview after Wells Fargo announced the agreement on Oct. 3. “There will be some hard work needed to work through these asset problems.”

Wells Fargo gains control of a bank with $448 billion of deposits in 21 states. It would be the biggest U.S. bank by number of retail locations, with 6,675 branches, compared with Bank of America Corp.’s 6,139. About half of Wachovia’s branches are on the U.S. East Coast, while Wells Fargo’s are mostly in California and the U.S. Southwest.

Wells Fargo’s all-stock bid, originally valued at $7 a share, declined this week as the bank’s share price fell. Based on Wells Fargo’s closing price today of $27.53 today, the offer is worth $5.43 per Wachovia share.

The offer was made four days after Citigroup said it would buy Wachovia’s banking operations for the equivalent of about $1 a share in a deal supported by the Federal Deposit Insurance Corp.

Wells Fargo said its deal was better for shareholders and taxpayers because the government won’t be strapped with soured loans. Wells Fargo and Wachovia reiterated the terms of the takeover in regulatory filings today.

Wachovia shares gained 36 percent in after-hours trading to $4.89 after declining 29 percent during regular trading today. Wells Fargo rose 3 percent after the close to $28.07, rebounding from a 14 percent slump today. Citigroup was little changed at $12.93 after dropping 10 percent during the day.

Citigroup said in a statement that it couldn’t reach an agreement this week on Wachovia because of “the dramatic differences in the parties’ transaction structures and their views of the risks involved.”

FDIC Chairman Sheila Bair, who last week threatened to put Wachovia into receivership if a merger agreement wasn’t signed, said Citigroup’s move brings “much needed” certainty to the process. The Federal Reserve said in a statement that it will immediately begin reviewing terms of the Wells Fargo offer.

Wells Fargo may benefit from a notice by the IRS that makes Wachovia’s loan losses more valuable as deductions. The new rule means Wachovia’s losses can be used to offset an unlimited amount of Wells Fargo’s taxable income over 20 years.

The rule change may save Wells Fargo $25 billion in the coming years, said Robert Willens, a former Lehman Brothers Holdings Inc. accounting analyst who teaches at Columbia Business School in New York.

Wells Fargo also gains Wachovia’s $498 billion loan portfolio, including about $122 billion of option adjustable- rate mortgages. The home mortgages are prone to default because they allow borrowers to defer part of interest payments, boosting the principal. After housing markets weakened, borrowers were left with loans larger than the value of their homes.

“We’re pleased Citigroup has abandoned its efforts to interfere with Wachovia’s planned merger with Wells Fargo,” Wachovia spokeswoman Christy Phillips Brown said. “We look forward to completing our merger with Wells Fargo, which we have always believed is in the best interest of shareholders, employees, creditors and retirees as well as the American taxpayers.”

While Citigroup isn’t challenging the merger, the bank said it has “strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisers and others” for breach of contract.

Citigroup sued Wachovia in New York State Supreme Court, saying it was entitled to “specific performance” of an exclusivity agreement intended to block negotiations with other bidders.

“I’m not sure its going to be viewed as good for Citi,” said Charles Carlson, a portfolio manager at Horizon Investment Services LLC in Hammond, Indiana. “The more Citi could beef up its operations and be part of the big bank club, the better.”