Citigroup has agreed to buy the banking operations of Wachovia.
Unlike Washington Mutual’s acquisition last week by JPMorgan, Wachovia’s operations did not fail. This will be an open operation buy from Citigroup of Wachovia’s banking operations. Citigroup will be assuming up $42 billion in losses from Wachovia while the FDIC will assume any losses above that amount in exchange for $12 billion in preferred stocks and warrants from Citigroup.
Although this isn’t an actual bank failure it looks like the gov’t will be bailing out losses above $42 billion. This may not even happen but it should be noted that the gov’t could be absorbing some of this!
Wachovia will still retain ownership of investment firm AG Edwards and the Evergreen mutual fund family.
The banking transition should be seamless and depositors need now worry about their accounts. There will be no interruption of banking.
Citigroup’s acquisition of Wachovia firms up the nation’s banking into three main banks: Citigroup, JPMorgan Chase, and Bank of America. The NY Times questions what will happen with so much banking power under three banks. If Federal regulators don’t scrutinize then well they could set prices for loans that smaller banks can’t keep up with. It’s possible that other banks may scramble to merge or seek acquisitions in order to stay competitive with the “big three.”
What will the rest of the week bring?
Can’t help but think of the following song from Queen – Enjoy!
Sources:
FDIC: Citi To Buy Wachovia’s Banking Operations
Citigroup Buys Banking Operations Of Wachovia
Citigroup Agrees To Buy Wachovia’s Banking Business
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can’t help but to think there will only be 2 or 3 banks left at the end.
@ Richard – For sure there’s three giants now. Time will tell what happens. Goldman has $5 billion of Buffet’s money and permission to start taking deposits. I hope there’s enough for the smaller fish these days to keep competitive. I’d hate if only three controlled mortgage rates.
“The NY Times questions what will happen with so much banking power under three banks ”
What about so much banking power under the government?
BTW: Thanks for the disco flashback! Freddie was such a character I wish modern day rock stars took themselves less seriously, Queen were always great that way….
We use Wachovia so we have been following these proceedings with extra-special interest. What a roller-coaster ride the financial world has been on recently!
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