Citigroup to buy Wachovia's banking units, halve dividend

— -- The deal appears to have come at a cost to all parties as Citigroup, to shore up its capital position, said it will sell $10 billion in common stock and cut its quarterly dividend in half to 16 cents a share.

Citigroup 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.

The FDIC emphasized that Wachovia didn't fail and that all depositors are protected.

"For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their 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. Wachovia will continue to own AG Edwards, a brokerage firm, and Evergreen Investments, an investment management company, and will continue as a publicly traded company.

Wachovia's financial problems stem from its acquisition of Golden West Financial in 2006 for roughly $25 billion. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of "pick-a-payment loans," which let borrowers skip some payments.

Concerns about Wachovia's financial health have hammered the company's stock in recent days. On Friday, Wachovia's stock closed Friday at $10, down 74% for the year. Even as details of its takeover unfolded, Wachovia shares plunged in Monday premarket trading less than $1.

On Thursday, the FDIC brokered the sale of Washington Mutual, the nation's largest savings and loan, to JPMorgan Chase.