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Citigroup agreed yesterday to buy the retail banking operations of Wachovia in a deal brokered and backstopped by the US Government, which feared by the end of last week that the bank, once admired for its management and fat balance sheet, was on the brink of collapse.
The takeover was one more symptom of the extraordinary upheavals in the financial sector and takes its consolidation one step further.
Citigroup, JP Morgan Chase and Bank of America now control almost one-third of all deposits in the US. JP Morgan Chase bought Washington Mutual and Bank of America has swallowed Merrill Lynch.
Citigroup was coaxed into the deal by officials of the Federal Deposit Insurance Corporation, the agency responsible for protecting account holders from bank failures.
Under the agreement, Citigroup will absorb up to US$42 billion ($62 billion) of Wachovia losses but the agency will be responsible for losses beyond that in a loss pool of US$312 billion. In return, it will receive US$12 billion of Citigroup preferred stock.
The FDIC insisted Wachovia did not fail.
"Today's action will ensure seamless continuity of service from their bank and full protection for all their deposits."
The deal came just four days after JP Morgan Chase intervened to save Washington Mutual, another giant American bank hitting the wall.
The retail banking landscape in America continues to change faster than the autumn colours.
FDIC chairwoman Sheila Bair said bank customers should expect business as usual.
Citigroup is acquiring Wachovia's banking operations for US$2.1 billion in stock and it will assume another US$53 billion of Wachovia debt.
- INDEPENDENT
