Citigroup Buys Wachovia Banking

Citigroup agreed Monday to purchase Wachovia's banking operations for $2.1 billion in a deal arranged by federal regulators, making the Charlotte-based bank the latest casualty of the widening global financial crisis. The deal greatly expands Citigroup's retail franchise -- giving it a total of more than 4,300 U.S. branches and $600 billion in deposits -- and secures its place among the U.S. banking industry's Big Three, along with Bank of America Corp. and JPMorgan Chase & Co. Citigroup Inc. announced that will slash its quarterly dividend in half to 16 cents. It also will dilute existing shareholders by selling $10 billion in common stock to shore up its capital position. The agreement comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia Corp., which was weighed down by losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

FDIC says Wachovia did not fail

Wachovia, like Washington Mutual Inc., which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offered very low introductory payments and let borrowers defer some interest payments until later years. Home loan delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks. The Wachovia acquisition is just another giant mortgage company merger in the past six months that has redefined the Wall street and mortgage companies. It all started with the government-led forced sale of Bear Stearns Cos. to JPMorgan in March. The failure of IndyMac Bancorp in July reignited investors' fears about the stability of the financial sector, which led to the eventual takeover of struggling mortgage lenders Fannie Mae and Freddie Mac. Earlier this month, officials seized both Fannie and Freddie, temporarily putting them in a government conservatorship, replacing their chief executives and taking a financial stake in the mortgage loan companies.

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