Binyamin Appelbaum, Neil Irwin and Howard Schneider
Monday, Sept 29, 2008
Citigroup has agreed to buy Wachovia bank in a deal backstopped by taxpayers and brokered by the Federal Deposit Insurance Corporation to avoid another major corporate failure in the midst of the ongoing financial crisis.
Citigroup will pay the Charlotte-based Wachovia about $2.16 billion, or $1 per share, for its banking operations. Wachovia will retain its wealth management and brokerage operations.
The deal boosts Citigroup as a third rival for Bank of America and J.P. Morgan Chase in the new category of financial behemoths that are emerging from the current financial crisis. Those three banks will now control almost a third of the nation’s deposits.
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Citigroup, based in New York, also will become the largest bank in the Washington area. The company said it would raise $10 million in new capital to help it absorb Wachovia’s troubled loan portfolio. Citigroup also plans to cut the dividend on its shares, among the most widely held stocks in America.
The FDIC announced the deal on its Web site this morning, and said that the deal hinged on a loss sharing arrangement between Citigroup and the agency, which is responsible for insuring bank deposits.
Wachovia has been saddled by mortgage-related losses. Under the terms of the deal, Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will be responsible for any losses beyond that, but was given $12 billion in Citigroup preferred stock and warrants in return for that guaranty.
The Wachovia purchase is the second major bank buyout orchestrated by the FDIC in the last week. The agency also helped arrange the sale of the failed Washington Mutual to J.P. Morgan Chase.
This article was posted: Monday, September 29, 2008 at 12:04 pm