Citigroup to Buy Wachovia Banking Operations: FDIC

The Federal Deposit Insurance Corporation (FDIC) said Monday that banking giant Citigroup will acquire the banking operations of Charlotte-based Wachovia with the assistance of the FDIC.

Although the FDIC is facilitating the deal, it was quick to point out that Wachovia did not fail. Rather, the bank is being “acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.”

The FDIC said that Citi will acquire the bulk of Wachovia’s assets and liabilities for $2.16 billion. As a part of the deal, Citi will absorb $42 billion in losses from Wachovia’s $312 billion pool of loans, with the FDIC absorbing the rest of the losses. To compensate, Citi will pay the FDIC $12 billion in preferred stock and warrants.

Wachovia will still own brokerage firm A.G. Edwards and investment bank Evergreen Investments.

The news came after weekend reports that Wachovia was poised to sell itself to either Wells Fargo or Citi. But regulators wanted to get a deal done and stepped in to help Citi close the transaction.

"On the whole, the commercial banking system in the United States remains well capitalized. This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury," said FDIC Chairman Sheila C. Bair in a statement. "This action was necessary to maintain confidence in the banking industry given current financial market conditions."

Wachovia was the fourth-largest banking chain in the U.S., based on assets.

Citigroup said in a press release Monday that after the deal, it will have 4,300 banking branches in the U.S. and another 3,300 around the world. Citigroup said that its new retail branch banking unit will control $600 billion in deposits – a 9.8 percent share of that market – and will allow it to penetrate markets in which it currently does not have a presence. Global deposits will total $1.3 trillion after the deal, according to Citi.