Citigroup to acquire Wachovia

Posted September 28, 2008 7:50 p.m. EDT
Updated September 29, 2008 8:38 a.m. EDT

— Citigroup will acquire Wachovia, the nation's fourth-largest bank, the financial giants said shortly after 8 a.m. Monday.

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

The New York Times had reported on its Web site that Citigroup Inc. and Wells Fargo & Co. were bidding in a possible emergency takeover of Charlotte, N.C.-based Wachovia.

The Wall Street Journal also listed Spain's Banco Santander SA as a possible bidder. Both papers cited people familiar with the talks whom they did not name.

Before the announcement, Wachovia spokeswoman Christy Phillips-Brown declined to comment on the reports, as did Citigroup spokeswoman Christina Pretto. Wells Fargo spokesmen could not be immediately reached for comment.

Wachovia's shares fell 27 percent in regular-session trading on Friday, then shed another 15 percent in after-hours dealings to end the week at $8.50, as investors' worries heightened.

Wachovia's 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

But like many other banks, Wachovia stands to benefit if Congress passes the government's proposed $700 billion rescue plan – the details of which were emerging from Washington.

This summer, Wachovia reported a $9.11 billion loss for the second quarter, announced plans to cut 11,350 jobs – mostly in its mortgage business – and slashed its dividend. Wachovia also boosted its provision for loan losses to $5.57 billion during the second quarter, up from $179 million in the year-ago period.

Earlier this month, Wachovia said it is on track to reduce securities and outstanding loans on its balance sheet by $20 billion this year, which will free up $1.5 billion in capital.

Additionally, Wachovia still expects to reduce expenses by $2 billion by the end of 2009.

However, the second-half expense benefit will be more than offset by $525 million to $650 million in severance and benefit costs related to previously announced job cuts, Wachovia said.