Citi to acquire Wachovia assets in a US government-backed rescue

29 September 2008

Mumbai: Citigroup Inc will acquire most of Wachovia Corporation assets even as the US lawmakers were preparing to vote on a $700 billion bail-out of failed banks in the US.

Citigroup Inc will acquire the banking operations of Charlotte, North Carolina-based Wachovia Corporation, in a transaction facilitated by the Federal Deposit Insurance Corporation with the concurrence of the board of governors of the Federal Reserve and the secretary of the treasury in consultation with the President.

The takeover will guarantee protection to all depositors and there will 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,'' a release said.

''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," she added.

Citigroup will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corporation, which in turn 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, the release said.