Wachovia Latest Bank to Collapse in U.S. Financial Crisis, Citigroup Buys Its Assets

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Citigroup announced it will buy Wachovia’s banking operations for $2.1 billion in stock. It will also assume another $53 billion in debt. Federal Chairman Ben Bernanke said he welcomes the Wachovia bailout deal.

Digital Journal – Another financial fallout stunned the U.S. economy today. Citigroup said it will acquire the banking operations of Charlotte-based Wachovia Corporation, according to the Federal Deposit Insurance Corporation. Orchestrated by the federal government, the deal will see Citigroup pay $2.1 billion in stock and absorb losses totalling more than $53 billion.

Citigroup is buying what the FDIC calls “the bulk of” Wachovia's assets and liabilities, including five depository institutions. The press release states: “Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.”

The FDIC also said the deal was necessary in order to avoid serious consequences as a result of the economic stability striking Wall Street.

FDIC Chairman Sheila C. Bair wanted to allay any consumer worries:

For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits. There will be no interruption in services and bank customers should expect business as usual.

Wachovia has seen its luck turn for the worse. When it acquired Golden West Financial Corp in 2006, it was saddled with massive amounts of troubled adjustable-rate mortgages. Wachovia’s woes peaked when Washington Mutual was seized last week – its shares stumbled 27 per cent and the bank soon held discussions with various institutions, including Well Fargo, Spain’s Banco Santander and Citigroup.

The sale further concentrates America’s financial institutions in the hands of the three major banks: Citigroup, Bank of America and JP Morgan Chase. The three dominating banks could become so large they could have unrivaled power to set prices for their loans and services. Then again, these banks could also come under more scrutiny from federal regulators who want to ensure fair practices in these financially depressing times.