New York - US banking giant Citigroup Inc will buy the bulk of the operations of fourth-largest bank Wachovia Corp for about 2.16 billion dollars, the latest consolidation move under government watch in the ongoing credit crisis. Citigroup will buy the banking business of Wachovia and get government help in absorbing some of the losses related to the subprime-mortgage market, the Federal Deposit Insurance Corporation (FDIC) said in a statement Monday.
The announcement came hours before the US House of Representatives rejected a 700-billion-dollar government plan to rescue the economy from the brink of financial meltdown.
The FDIC insisted the Citigroup acquisition should not be viewed as a bailout, and assured Wachovia customers that operations would continue to run smoothly in the transition.
"Wachovia did not fail; rather, it is to be acquired by Citigroup Inc on an open bank basis with assistance from the FDIC," the statement said.
Citigroup will take on more than 40 billion dollars in losses. The FDIC will absorb losses beyond that amount in exchange for 12 billion dollars in preferred stocks and warrants.
"On the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and the Treasury," FDIC chairperson Sheila Bair said.
"This action was necessary to maintain confidence in the banking industry given current financial market conditions," she said.
Wachovia had been in talks for days about a possible takeover after concerns over its capital position and a plunge in its stock price.
Treasury Secretary Henry Paulson said the sale would "mitigate potential market disruptions."
"I agree with the FDIC and the Federal Reserve that a failure of Wachovia would have posed a systemic risk ... in this period of market stress, we are committed to taking all actions necessary to protect our financial system and our economy."
Just last week, Washington Mutual became the largest bank in US history to fail.
