Wachovia Insurance Services not Included in Citigroup Acquisition

September 30, 2008

In the latest byproduct of the widening global financial crisis, Citigroup Inc. will acquire the banking operations of Wachovia Corp. in a deal facilitated by the government agency that insures the country’s bank deposits.

Wachovia Insurance Services is not included in the deal, according to Vince Scanlon, a spokesperson for Wachovia. Wachovia Insurance Services employs 1,300 people in 34 offices in 15 states and Washington D.C.

Citigroup will absorb up to $42 billion of losses in the deal, with the Federal Deposit Insurance Corp. covering any remaining losses, the government agency said on Sept. 29. Citigroup also will grant the FDIC $12 billion in preferred stock and warrants.

The deal comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia, which was suffering from mounting mortgage losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

The FDIC asserted that Wachovia didn’t fail, and that all depositors are protected and there will be no cost to the Deposit Insurance Fund.
Federal Reserve Chairman Ben Bernanke, in a statement Sept. 29, said he supports the “timely actions” taken by the FDIC “which demonstrate our government’s unwavering commitment to financial and economic stability.”

Treasury Secretary Henry Paulson also welcomed the sale of Wachovia to Citigroup, saying it would “mitigate potential market disruptions.” Paulson said he agreed with the FDIC and the Fed that a “failure of Wachovia would have posed a systemic risk” to the nation’s financial system.

“As I have said before, in this period of market stress, we are committed to taking all actions necessary to protect our financial system and our economy,” Paulson said.

The sale of the Wachovia assets comes just days after the government’s seizure of Seattle-based Washington Mutual Inc. — the largest bank failure in U.S. history. As details of its takeover unfolded, Wachovia shares plunged 91 percent in premarket trading on Sept. 29 to 91 cents. The stock closed Sept. 26 at $10, down 74 percent for the year.

Wachovia has been among the banks hardest hit by the ongoing crisis in the mortgage market. It paid roughly $25 billion for Golden West at the height of the nation’s housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West’s specialty, which let borrowers skip some payments.

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