Citigroup Inc. to Acquire Banking Operations of Wachovia

WSJ | 9/29/08 | FDIC

[FlameThrower]

FDIC: Citi to Buy Wachovia’s Banking Operations The FDIC made the following announcement this morning on Citi’s purchase of Wachovia’s banking operations.

Citigroup Inc. to Acquire Banking Operations of Wachovia

FDIC, Federal Reserve and Treasury Agree to Provide Open Bank Assistance to Protect Depositors

Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. 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 Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

In consultation with the President, the Secretary of the Treasury on the recommendation of the Federal Reserve and FDIC determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability.

“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,” Bair said. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.”

Wachovia customers with questions should call their normal banking representative, service center, 1-800-922-4684 or visit www.wachovia.com. The FDIC’s consumer hotline is 1-877-ASK-FDIC (1-877-275-3342) or visit www.fdic.gov.

[SteveAustin]

What is the status of all that preferred stock that Wachovia has issued?

[Constitution Day]

So long, Walk-all-ovah-ya.

[twigs]

I’m right in the middle of getting a mortgage from Wachovia. I don’t understand these matters enough to know if our mortgage loan will be affected.

[Scutter]

When all of this shakes out there will be 3 banks. Chase, Citi, and Wells Fargo.

You forgot Bank of America, and last time I checked, 4 competitors does not make a monopoly.

[litehaus]

"Citigroup Inc. to Acquire Banking Operations of Wachovia"

.

Because the FDIC is BROKE and cannot do its job !!!

[9YearLurker]

That was only adding the post-Glass-Steagall wave. Banks had been consolidating like mad for the decade before that, as intra-state branching was expanded and interstate banking allowed. In fact, efficiency in bank mergers and acquisitions was routine and a major requirement for success in the banking industry. Likewise, overnight bank closings and regulator-arranged acquisitions have long been a part of their world.

But you’re sure right about Citigroup, they were the poster child for the ‘too big to fail’ policy in banking 20 years ago. Banking’s been so heavily regulated that regulators are used to coercing individual banks to do pretty much whatever the regulators deem necessary for the industry.

[FlameThrower]

But you’d need a truck to buy a car

[Gondring]

I doubt Bank of America will be gone.........

Because of its size and inertia? I thought BoA was very heavily leveraged, almost as much as WaMu was.

[Gondring]

You forgot Bank of America.

And Biden has BoA's back, right?

[dfwgator]

So how many banks will be left when all of this is done?

[FlameThrower]

This is its job!

[VRWCmember]

How long ago was it when the banking industry started consolidating? I know it was under Clinton, but even then, the stated goal, if memory serves, was to get down to a smaller number of banks.

The banking industry has been consolitdating since 1985; the defense contracting industry has been consolidating since the early 90's. An analogy that one of our executives used was pigs at a trough: when there are too many pigs at a trough, the only way for any of them to stay healthy is for some of them to starve (or be made into bacon).

[VRWCmember]

You forgot Bank of America, and last time I checked, 4 competitors does not make a monopoly.

When basic economics is no longer required for a HS diploma (or even a liberal arts bachelor's degree) it's little wonder that so many people don't know the difference between a monopoly and an oligopoly.

[VRWCmember]

Need to return to state banking regulations of the 1970's.

Yeah, the convenience of being able to access your account funds from any of the thousands of ATMs across town is so overrated.

[RayChuang88]

I think Bank of America will be around—mostly because they have so much operations worldwide.

[em2vn]

How is Wachovia Securities capitalized? It wasn’t a stock traded seperate from the bank. I wonder where its operating capital is will from.

[Wallace T.]

If the losses in the Wachovia portfolio exceed the $40 billion that Citibank agreed to absorb as well as the preferred stock in Citigroup, then the FDIC will have to use its principal asset, the Deposit Insurance Fund, to absorb the losses. The experience of the FSLIC, RTC, and FDIC in the late 1980s and early 1990s is sufficient evidence of the fact that losses often exceed initial estimates. At least those loans had real property as support, perhaps overvalued, but still with some tangible value. Wachovia's mortgage derivatives, often backed up by some exotic sliced and diced income stream, usually from subprime or Alt-A loans, lack even this level of support. If the losses exceed estimates, the FDIC Deposit Insurance Fund, built up by the premiums of thousands of well run community banks, will be seriously depleted.

I do not support any bailout of these institutions as a general principle. If it must be done, it should be the job of the Federal Reserve or the Treasury rather than the FDIC.

[FlameThrower]

“I do not support any bailout of these institutions as a general principle. If it must be done, it should be the job of the Federal Reserve or the Treasury rather than the FDIC.”

Please explain what institution has been bailed out? Wachovia is no more. There is a potential future loss to the deposit insurance fund, but it was at risk if Wachovia failed. And why do you say the FDIC ought not to be involved when they so obviously already are. They have the deposit insurance liability. Why not try to mitigate those losses as they so expertly doing now?

[Nathan Zachary]

"Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC. "

It was on it's way there according to it's share prices on fridays close.

[iopscusa]

IMHO, the consolidation across industries is a rational response to increasing need to counter the growing power of governments both domestic and global. The Globalization of all markets is another reason for consolidation.