Citigroup buys Wachovia bank assets for $2.2B

NEW YORK (CNNMoney.com) -- Citigroup will acquire the banking operations of Wachovia for $2.2 billion in an all-stock deal announced Monday, following much speculation over the weekend about the fate of the nation's fourth-largest bank. To help finance the transaction, Citigroup said it would raise $10 billion through a sale of common stock and announced it would slash its quarterly dividend yet again, cutting it in half to 16 cents a share to preserve capital. As part of the deal, Citigroup will acquire Wachovia's massive deposit network, giving it more than $600 billion in deposits in the U.S., about a 9.8% market share, and broadening its presence in such key regions as the Southeast and the West.At the same time, Citi will assume about $53 billion in the Wachovia's debt and take hold of the same loan portfolio that ultimately sank Wachovia in the end.Of the more than $300 billion in loans it absorbs, Citigroup said it would cover up to $42 billion of losses on those loans, while the Federal Deposit Insurance Corporation will be on the hook for anything beyond that. In exchange, the FDIC will get preferred stocks and warrants worth about $12 billion.Banking regulators stressed that consumers who bank with Wachovia would not experience any interruption in service and that their deposits remained protected."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.The FDIC noted that Wachovia did not qualify as a failed bank, unlike Washington Mutual, which collapsed last Thursday, only to be subsequently purchased by JPMorgan Chase (JPM, Fortune 500).Following a string of high-profile collapses of banks in recent weeks including WaMu and the demise of Lehman Brothers, there has been increasing speculation that Wachovia could be the next one to go.Some top federal officials, including Bair and Treasury Secretary Henry Paulson, had feared that had a deal for Wachovia not been reached, it could have resulted in further fallout for both the economy and the already fragile financial system. SOURCE:CNN.COM