Citigroup to acquire Wachovia’s banking operations (Lead)(With Bush seeks quick approval as Wachovia fails)

September 29th, 2008 - 10:47 pm ICT by IANS  

New York, Sep 29 (IANS) In yet another fallout of the ongoing financial crisis, US banking giant Citigroup is buying the banking operations of Wachovia Corp. in a deal facilitated by the US government, the Federal Deposit Insurance Corp. (FDIC) has said. Citigroup, headed by India-born Vikram Pandit, Monday agreed to acquire Wachovia’s banking operations for $2.1 billion in stock and will assume another $53 billion in Wachovia’s debt.

Wachovia was also in takeover talks with Wells Fargo, a diversified financial services company, and FDIC said all its depositors are protected and there will be no cost to the Deposit Insurance Fund.

Based in Charlotte, North Carolina, Wachovia was the fourth largest banking chain in the US based on total assets.

Federal banking regulators pushed the Wachovia-Citigroup deal by agreeing to share a portion of future losses that Wachovia’s failing mortgage portfolio could generate, Wall Street Journal said online.

“The FDIC has agreed to provide loss protection in connection with approximately $312 billion of mortgage-related and other Wachovia assets,” Citigroup said in a statement.

The Federal Reserve and Treasury Department were also part of the effort to save Wachovia. “This is another sign of how proactive the government has been in preventing ailing financial firms from failing and instead pushing for stronger firms to acquire some assets of the weaker companies,” the Journal commented.

Wachovia shares fell more than 90 percent in premarket trading Monday, and the New York Stock Exchange did not open the shares for trading. Citigroup was off 1 percent at $19.95 shortly after the market opened.

For Citigroup, it is a rapid transformation from one of Wall Street’s biggest losers to a “pillar of strength,” as top executives began calling the company earlier this month, and a sign of the turmoil sweeping the banking sector, the Journal said.

Citigroup has posted more than $40 billion in write-downs over the past year and other losses stemming from the mortgage meltdown. Its stock price has shrivelled to less than $20, compared to more than $50 over a year ago.

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