Wachovia Recap
Citigroup has agreed to purchase the banking operations including the deposits and liabilities of Wachovia (NYSE: WB). Citigroup is, however, receiving some assistance from the FDIC. The FDIC will take responsibility for any losses above $42 billion from Wachovia's loan book. In return, taxpayers will receive $12 billion in preferred stock and warrants. Wachovia banking customers should see no interruption in services as the exchange takes place.
Week-end reports from Bloomberg said that Wells Fargo, Citigroup and Spain's Santander were all interested in the ailing Wachovia, and that Wells Fargo looked to have the inside track in the negotiations. However, Citigroup was able to get the deal done. For shareholders, news of an open market buyout has to be welcomed at this point. With a federal takeover, shareholders would have been left with nothing.
Wachovia had an even higher percentage of their portfolio tied up in option ARM's than did Washington Mutual which was seized by the feds and largely sold off to JP Morgan. Washington Mutual's collapse was dramatically hastened by ordinary retail depositors withdrawing their deposits from the troubled bank as news of their mortgage asset troubles circulated on Main Street.
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