Citigroup acquiring Wachovia

CHARLOTTE -- The Federal Deposit Insurance Corp. this morning said Citigroup Inc. will acquire the banking operations of Charlotte-based Wachovia Corp. in a transaction facilitated by the FDIC.

Wachovia said Citigroup is buying its retail bank, corporate and investment bank and wealth management business. Wachovia will remain a public company with two main subsidiaries: the Wachovia Securities brokerage firm and Evergreen Asset Management.

Wachovia will remain headquartered in Charlotte, while Wachovia Securities will continue to be based in St. Louis. Citigroup will base its retail bank in Charlotte and its investment bank in New York.

“During recent weeks, the financial landscape has changed significantly and presented us with unprecedented challenges,” Wachovia chief executive Bob Steel said. “Today’s announcement is the best alternative for the company, enabling a resolution on the Golden West portfolio.”

The deal is a dramatic fall for an N.C. institution – the 2001 combination of Charlotte’s First Union and Winston-Salem’s Wachovia -- that grew into a national giant by gobbling up other cities’ banks. Combining Citi and Wachovia creates a third national behemoth to compete with Charlotte’s Bank of America and New York’s JPMorgan Chase.

A sale to Citi likely means big layoffs for Wachovia’s workforce of 120,000, which includes 20,000 here in Charlotte. A Citi spokeswoman declined to comment on layoffs, but in a statement Citi said it expects to realize “more than $3 billion of annualized expense synergies through the consolidation of overlapping functions.”

Following the closing of the transaction, Citi said it expects to merge banking operations by the end of 2010.

“Our total deposits will be $1.3 trillion globally, $350 billion more than our next largest U.S. competitor, making us one of the world's largest core deposit-funded financial institutions,” Vikram Pandit, Citi’s CEO, said in a statement. “Moreover, it is essential that Wachovia, a company we deeply respect, maintain a strong presence in Charlotte, N.C.”

Under terms of the transaction, Citigroup is paying $2.1 billion to Wachovia and assuming the senior and subordinated debt of Wachovia. The transaction, which is expected to close by year end, has been approved by both boards and is subject to shareholder and regulatory approval. At this time, Wachovia said there would be no changes to Wachovia’s board and two Wachovia directors will join Citigroup’s board.

The bank said customers, employees and vendors should continue as business as usual.

All depositors are fully protected and there is expected to be no cost to the federal deposit fund, the FDIC said. Wachovia did not fail, the FDIC said. Instead, it is to be acquired by the New York bank with FDIC assistance.

“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 Bair in a statement.

New York-based Citigroup will buy most of Wachovia’s assets and liabilities, including five depository institutions and assume the senior and subordinated debt of Wachovia, the FDIC said. Wachovia will continue to own brokerage A.G. Edwards and the Evergreen asset management arm. In premarket activity, Wachovia shares fell 92 percent to 73 cents from Friday’s $10 closing price.

As part of the sale, the FDIC reached an agreement to share losses on a pool of Wachovia loans. Under the agreement, Citi will take losses of up to $42 billion on a pool of $312 billion in loans. The FDIC will take losses after that. Citigroup has granted $12 billion in preferred stock and warrants to the FDIC to compensate the FDIC for taking on this risk.