Citi to buy bulk of Wachovia
(2 October 2008 – USA) America’s largest bank is set to get even larger, with the announcement that it will take over the banking operations of the fourth largest US bank by assets, Wachovia.
Wachovia will sell its retail bank, corporate and investment bank and wealth management businesses to Citigroup.
Wachovia Corporation, however, will remain a public company with two main operating subsidiaries. These will be Wachovia Securities, America’s third largest brokerage firm, and Evergreen Asset Management.
Citigroup will pay US$2.1 billion to Wachovia and assume the senior and subordinated debt of Wachovia Corporation.
The bank will acquire more than US$700 billion of assets of Wachovia's banking subsidiaries, and related liabilities.
The transaction was facilitated by the Federal Deposit Insurance Corporation. The FDIC reiterated that Wachovia did not fail, but rather was acquired on an open bank basis.
The FDIC said that it has entered into a loss sharing arrangement on a pre-identified pool of loans. Under this agreement, Citigroup will absorb up to US$42 billion of losses on a US$312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC US$12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.
After the acquisition, Citigroup will have more than US$600 billion in deposits in the US, giving it a 9.8 percent market share. Total deposits will be US$1.3 trillion globally, making it one of the world's largest core deposit-funded financial institutions.
Wachovia Corporation, however, will remain a public company with two main operating subsidiaries. These will be Wachovia Securities, America’s third largest brokerage firm, and Evergreen Asset Management.
Citigroup will pay US$2.1 billion to Wachovia and assume the senior and subordinated debt of Wachovia Corporation.
The bank will acquire more than US$700 billion of assets of Wachovia's banking subsidiaries, and related liabilities.
The transaction was facilitated by the Federal Deposit Insurance Corporation. The FDIC reiterated that Wachovia did not fail, but rather was acquired on an open bank basis.
The FDIC said that it has entered into a loss sharing arrangement on a pre-identified pool of loans. Under this agreement, Citigroup will absorb up to US$42 billion of losses on a US$312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC US$12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.
After the acquisition, Citigroup will have more than US$600 billion in deposits in the US, giving it a 9.8 percent market share. Total deposits will be US$1.3 trillion globally, making it one of the world's largest core deposit-funded financial institutions.
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