Posted tagged ‘Ben Bernanke’

Citigroup Acquires Wachovia

September 29, 2008

Citigroup has agreed to acquire Wachovia‘s banking operations for approximately $2.1 billion in stock and will assume another $53 billion in Wachovia’s debt. The transaction is expected to close before year-end. It has been approved by the directors of both companies and is subject to Wachovia shareholder and regulatory approval.

From the Wall Street Journal:

Citi’s purchase of the fabled Charlotte bank marks another deal orchestrated by the federal government, this time by the Federal Deposit Insurance Corporation, and one in which the agency could be on the hook for loan losses.

“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, 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.

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

The FDIC said the deal was reached in concurrence with it, the Federal Reserve Board and the U.S. Treasury Department. “There will be no interruption in services, and bank customers should expect business as usual,” FDIC Chairwoman Sheila Bair said.

In a separate statement, Fed Chairman Ben Bernanke said he welcomes the Wachovia bailout deal and supports the timely actions taken by the FDIC. He added that the FDIC action shows the government is committed to U.S. financial stability.

The FDIC sought to calm any concerns the Citigroup and Wachovia deal might have on financial markets.

From the Washington Post:

The purchase of Wachovia boosts Citigroup as a rival for Bank of America and J.P. Morgan Chase in the new coterie of financial behemoths that is emerging from the current financial crisis. Those three banks will now control almost a third of the nation’s deposits.

Citigroup, based in New York, also will become the largest bank in the Washington area. The company said it would raise $10 million in new capital to help it absorb Wachovia’s troubled loan portfolio. Citigroup also plans to cut the dividend on its shares, among the most widely held stocks in America.

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