30 Sep 08 Citigroup Buys Wachovia’s Banking Operations
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By Associated Press –
NEW YORK –Citigroup agreed Monday to purchase Wachovia’s banking operations for $2.1 billion in a deal arranged by federal regulators, making the Charlotte, N.C.-based bank the latest casualty of the widening global financial crisis.
The deal greatly expands Citigroup’s retail franchise — giving it a total of more than 4,300 U.S. branches and $600 billion in deposits — and secures its place among the U.S. banking industry’s Big Three, along with Bank of America Corp. and JPMorgan Chase & Co.
But it comes at a cost: Citigroup Inc. said it will slash its quarterly dividend in half to 16 cents. It also will dilute existing shareholders by selling $10 billion in common stock to shore up its capital position.
In addition to assuming $53 billion worth of debt, Citigroup will absorb up to $42 billion of losses from Wachovia’s $312 billion loan portfolio, with the Federal Deposit Insurance Corp. agreeing to cover any remaining losses. Citigroup also will issue $12 billion in preferred stock and warrants to the FDIC.
There should be no major changes for Wachovia customers in Columbus, the company said Monday.
Wachovia, the No. 2 bank in Columbus in terms of market share, operates 16 branches here, employing about 200 people. It oversees more than $800 million in local deposits, according the June 2007 data from the Federal Deposit Insurance Corp.
“The main thing that customers need to know is that Wachovia financial centers are open for business,” said Evelyn Mitchell, spokeswoman for Wachovia’s Georgia and Alabama operation. “There is no immediate change to their accounts and their deposits continue to be fully insured based on the FDIC. If there are any changes in the future, we’ll be communicating with customers well in advance.”
Columbus Bank and Trust Co. has the largest market share locally.
Not a failure
The agreement comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia Corp., which was weighed down by losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.
Wachovia, like Washington Mutual Inc., which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offered very low introductory payments and let borrowers defer some interest payments until later years. Delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks.
Wachovia shares, which had slumped as the global credit crisis intensified in recent months, dropped $8.16, or 81.6 percent, to close at $1.84. They had traded as high as $52.25 over the past year.
Citigroup shares, meanwhile, fell $2.40, or 11.9 percent, to $17.75. Shares have traded between $12.85 and $48.95 in the past 12 months.
The FDIC asserted Monday that Wachovia did not fail, and that all depositors are protected and there will be no immediate cost to the Deposit Insurance Fund.
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