Worldwide banking remained in turmoil Monday as Wachovia wb became the latest giant to topple, agreeing to sell most of its operations to Citigroup c in a deal brokered by the Federal Deposit Insurance Corp.
All deposits in Wachovia are protected, even those with accounts in excess of the $100,000 FDIC insurance.
"Today's action will ensure seamless continuity of service from their bank and full protection for deposits," FDIC Chairman Sheila Bair said. "There will be no interruption in services, and bank customers should expect business as usual."
Citigroup will acquire most of Wachovia's assets and liabilities, but Wachovia will continue to own brokerage A.G. Edwards and investment manager Evergreen Investments. Charlotte-based Wachovia will also continue as a publicly traded company.
Concerns about Wachovia's financial health have hammered the company's share price. Friday, Wachovia closed at $10, off 81% from its 52-week high. By Monday's close, Wachovia had slumped to $1.84.
Wachovia's financial problems can be traced to its 2006, $24 billion acquisition of Golden West Financial. Wachovia inherited a deteriorating $122 billion portfolio of loans that let borrowers skip some payments. Wachovia posted a $9.1 billion loss for the second quarter, slashed its dividend and announced plans to cut 11,350 jobs, mostly in its mortgage business.
Havoc across the Atlantic
Wachovia may be the last big bank considered to be in immediate trouble, but fears continue to spread among the next-tier regional banks.
Havoc also reached across the Atlantic Monday, where Britain nationalized Bradford & Bingley, Britain's ninth-largest mortgage lender. It was the second U.K. bank to be taken on by the British government. Also, Belgium, the Netherlands and Luxembourg pumped $16.4 billion into Fortis to stabilize Belgium's largest financial services firm, taking on a 49% stake.
•Morgan Stanley ms said it would sell a 21% stake to Japan's Mitsubishi UFJ Financial Group for $9 billion to shore up its finances. Even so, Morgan Stanley stock closed down 15% to $20.99.
•Lehman Bros., which became the largest bankruptcy filing in U.S. history on Sept. 15, said it would sell its investment management business to private-equity firms Bain Capital Partners and Hellman & Friedman for $2.2 billion.
The Wachovia deal came just four days after the FDIC brokered the sale of Washington Mutual, the nation's largest savings and loan, to JPMorgan Chase.
"Citigroup passed over Washington Mutual because they were focused on a bigger target: Wachovia," says Bart Narter of Celent, a Boston-based financial research and consulting firm. He says the deal makes Citigroup an instant player in the Southeast and Mid-Atlantic states. It will add 731 branches in Florida, 323 in North Carolina, 320 in New Jersey and 309 in Pennsylvania, Narter says.
Citigroup, in an effort to shore up its capital position, said it will sell $10 billion in common stock and cut its quarterly dividend 50%, to 16 cents a share. Citigroup paid $2.1 billion for Wachovia and agreed to absorb $42 billion in losses from Wachovia's $312 billion loan portfolio, with the FDIC covering any remaining losses. Citigroup will issue $12 billion in preferred stock and warrants to the FDIC.
Citigroup lost 12% to $17.75.