Citigroup to buy Wachovia banking operations

Citigroup to buy Wachovia banking operations

NEW YORK - In the latest byproduct of the widening global financial crisis, Citigroup Inc. will acquire the banking operations of Wachovia Corp. in a deal facilitated by the Federal Deposit Insurance Corp.

Citigroup will absorb up to $42 billion of losses in the deal with Wachovia, the Philadelphia area's biggest bank by deposits.

The FDIC will cover any remaining losses, the government agency said Monday. Citigroup also will grant the FDIC $12 billion in preferred stock and warrants.

But it comes at a cost - Citigroup said Monday it will seek to sell $10 billion in common stock and slashed its quarterly dividend in half to 16 cents to shore up its capital position.

The deal greatly expands Citigroup's retail outlets and leaves it among the U.S. banking industry's Big Three along with Bank of America Corp. and J.P. Morgan Chase & Co.

Wachovia has about 200 locations and about 6,400 employees in the Philadelphia area, making it the region's largest bank by deposits and employees.

Citibank has about a dozen branches in the Philadelphia region, having started two years ago to build a network from scratch. Citigroup, with about 2,200 employees in the region (including Delaware), also has ATMs in 7-Eleven stories in the region.

The agreement comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia, which was suffering from mounting mortgage losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

Wachovia, like Washington Mutual Inc., which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offer very low introductory payments and let borrowers defer some interest payments until later years. Delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks.

The FDIC asserted that Wachovia didn't fail, and that all depositors are protected and there will be no cost to the Deposit Insurance Fund.

Federal Reserve Chairman Ben Bernanke, in a statement Monday, said he supports the "timely actions" taken by the FDIC "which demonstrate our government's unwavering commitment to financial and economic stability."

Treasury Secretary Henry Paulson also welcomed the sale of Wachovia to Citigroup, saying it would "mitigate potential market disruptions." Paulson said he agreed with the FDIC and the Fed that a "failure of Wachovia would have posed a systemic risk" to the nation's financial system.

As details of its takeover unfolded, Wachovia shares plunged 91 percent in Monday premarket trading to 91 cents. The stock had closed Friday at $10, down 74 percent for the year.

Wachovia's stock price had ranged from $7.80 to $52.25 in the last 52 weeks.

Trading in Wachovia shares was delayed this morning on the New York Stock Exchange.