Citigroup Acquires Wachovia, FDIC Deal Different Than WAMU’sby Tim Manni
Citigroup acquired the banking operations of Wachovia bank this morning in a deal engineered by the Federal Deposit Insurance Corporation. “Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC,” said the FDIC in a press release issued today.
Citi’s takeover of Wachovia comes on the heels of Washington Mutual’s failure of Friday. Despite the proximity of the shakeups, the two deals, although both involving the FDIC, are vastly different.
The FDIC constructed a “loan sharing agreement” that will require Citi to absorb $42 billion worth of losses from Wachovia, with the federal agency taking on any remaining losses sustained from the deal. In exchange, Citi has given the FDIC $12 billion worth of preferred stocks and warrants to offset their risk.
“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 C. Bair. “There will be no interruption in services and bank customers should expect business as usual.”
The banking landscape has significantly shifted in a very short period of time, and it will probably change a lot more before this all is finished.
What’s this going to cost me?
With the $700 billion financial-assistance plan hanging over the heads of consumers, you may want to know just exactly how these bank takeovers or failures will affect your pockets — and rightfully so. As of now, there will be no immeadiate cost to the FDIC. The FDIC fund could be on the hook if it has to absorb losses from Wachovia over $42 billion, but the FDIC fund is funded by banks. The way this deal is structured, there is a very indirect flow of cost, and no direct cost to taxpayers. Since Citi gave the FDIC shares of preferred stocks, the FDIC could end up making money on the deal, but that most likely wouldn’t be for some time.