There goes another one…
Citi will acquire much of Wachovia’s assets and liabilities, including five depository institutions, along with the bank’s senior and subordinated debt for $2.16 billion in stock.
The bank will take on losses of up to $42 billion on a $312 billion pool of loans (Golden West option arms), and anything beyond that will be absorbed by the FDIC.
As a result, Citi announced it would need to raise $10 billion in common equity and slash its quarterly dividend to 16 cents to maintain a strong capital position.
The bank will also grant the FDIC $12 billion in preferred stock and warrants to compensate for the risk.
The FDIC was quick to note that the Charlotte, NC-based bank had not “failed,” but was rather an open bank acquisition assisted by the agency.
FDIC Chairwoman Sheila Bair said the move was a recommendation of the Federal Reserve and FDIC to avoid “serious adverse effects” on the economy and financial stability of the United States.
She reiterated that the commercial banking system in the U.S. remains “well capitalized” on the whole, and said today’s move was necessary to maintain confidence in the ailing banking sector.
Shares of Wachovia had fallen $9.06, or 90.60%, to 94 cents in pre-market trading as the details of the deal unfolded.
I guess this is what happens when you buy a toxic mortgage lender for nearly $25 billion at the height of the mortgage boom.