What Citi Gets Out of the Wachovia Deal

US banking giant Citigroup (C) has acquired Wachovia Corp. (WB), once America’s fourth largest bank. In a transaction facilitated by the Federal Deposit Insurance Corp. (FDIC), Citi agreed to buy Wachovia’s banking operations, including five depository institutions and assume the bank’s senior and subordinated debt for $2.1 billion in stock.

Under a loss sharing arrangement, Citigroup will assume up to $42 billion of losses from a pool of $312 billion of loans held by Wachovia — the FDIC will absorb losses beyond that and take a stake in Citi for the guarantee.

Following the completion of the acquisition, Citi will have more than $600 billion in deposits in the U.S., nearly 10% market share. Total deposits worldwide will be $1.3 trillion.

In a statement the FDIC said that “Wachovia did not fail; rather, it was acquired by Citigroup on an open bank basis with assistance from the FDIC.”

“For Wachovia customers, today’s action will ensure seamless continuity of service from their bank and full protection for all of their deposits.” said FDIC Chairman Sheila C. Bair. “There will be no interruption in services and bank customers should expect business as usual”.

Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

The engineered bailout of Wachovia, which was brought down by mortgage-related losses, was taken in agreement with the Federal Reserve and the Treasury Secretary, in consultation with the White House. The parties involved determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability.

The deal followed much speculation over the weekend about the fate of the Charlotte, NC-based bank.

Wachovia will continue to own AG Edwards, a retail brokerage, and Evergreen, its asset management division, the FDIC said.

For Citigroup, which over the past year accumulated more than $40 billion in write-downs, and was a leader in creating some of the exotic securities that have been at the heart of the credit crunch ; this is quite a transformation — from one of Wall Street’s biggest losers to now a powerhouse.

Citi’s CEO Vikram Pandit called the acquisition extremely attractive from a strategic perspective, emphasizing the fact that it would augment the company's access to funding and liquidity.

Comments

[Ishortyou:]

ha ha....now Wachovia Corp the holding company got rid off the banking related subsidiaries which has all the toxics and debts and retain the best of its subsidiaries with shareholder preservation, thats a good deal for Wachovia considering that congress killed the bail out plan, now all the banking system is going to be hurting while Wachovia will enjoy the show and grow on sound grounds.

2008 Sep 29 05:03 PM

[peterm:]

hey ishortyou, your an idiot. this is the worst thing possible for wachovia, it will be slowly dismanteled, all of its assets will be sold, except for the needed few, major job losses, the entire charlotte market and surrounding areas will be obliterated into a waste land. first union was very good at this, they obliterated core states in this way, u r a real idiot for thinking anything different.

2008 Sep 29 07:24 PM

[EE:]

This is for the very smart ones..which is correct and why! I just figure the $42 B will be written off and deposits will reduce as the economy sickens.

2008 Sep 30 08:57 AM

[tipalia:]

long term C will come ahead even if there is a lot of pain to own it right now. Looks like JPM, GS, MS ,BAC ,WFC, C, and USB will win this marathon of greed and shame.

2008 Sep 30 09:13 AM

[tipalia:]

there will be a few more that I didn t cite above,which names would you add and/or substract from my list?ty

2008 Sep 30 09:15 AM