NEW YORK (AP) -- Citigroup Inc. will acquire the banking operations of Wachovia Corp., one of the nation's largest banks, in a deal facilitated by the Federal Deposit Insurance Corp.
Citigroup will absorb up to $42 billion of losses in the deal, with the FDIC covering any remaining losses, the government agency said Monday. Citigroup also will grant the FDIC $12 billion in preferred stock and warrants.
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.
The sale of Wachovia Corp. comes just days after the government's seizure of Seattle-based Washington Mutual Inc. -- the largest bank failure in U.S. history. Even as details of its takeover unfolded, Wachovia shares plunged 87 percent in Monday premarket trading to $1.36. The stock had closed Friday at $10, down 74 percent for the year.
Wachovia has been among the banks hardest hit by the ongoing crisis in the mortgage market. Its current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion 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.
I looks like a lot of borrowers chose to skip all the payments.
Wachovia was rumored to be the next bank to fail. At least this time the Feds didn't take a bath on the deal (at least not yet).
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