FDIC Chair Sheila C. Bair has overseen another shot-gun wedding – this time between Wachovia Corporation and Citigroup.
Citigroup agreed to pay $1 a share, or about $2.2 billion for Wachovia’s banking operations, according to media reports, in the latest deal brokered by federal officials as a result of the distressed mortgage market.
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Bair’s FDIC was a major player, agreeing to absorb losses from Wachovia above $42 billion and receive $12 billion in preferred stock and warrants from Citigroup – making U.S. taxpayers a stakeholder.
She stressed that the storied Charlotte bank did not fail, like Washington Mutual, which was seized by the authorities after suffering a run on deposits last week.
“This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury,” Bair said in a statement. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.
“There will be no interruption in services and bank customers should expect business as usual,” she said.
Wachovia will remain a public company, retaining its asset management and retail brokerage businesses, including the Evergreen franchise and the A.G. Edwards brokerage division.
The New York Times points out that the deal further concentrates Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup. Together, those three would be so large that they would dominate the industry, with unrivaled power to set prices for their loans and services.
Wachovia had been hurt badly by its 2006 purchase of Golden West Financial, a California lender specializing in so-called pay-option mortgages. The bank also faced mounting losses on loans made to home builders and commercial real estate developers.
In June, Wachovia’s board ousted G. Kennedy Thompson, the bank’s longtime chief executive, and replaced him the following month with Robert K. Steel, a former top lieutenant of Henry M. Paulson Jr. at both Goldman Sachs and the Treasury Department.
Steel arrived in New York to handle the negotiations in person this weekend, along with David M. Carroll, the bank’s chief deal maker. At 8:15 am. Saturday, at the Seagream Building offices of Sullivan & Cromwell on Park Avenue, Citigroup took their first peek at Wachovia’s books with Chief Executive Vikram Pandit personally overseeing the negotiations, according to media reports.
Top officials at the FDIC and the U.S. Treasury were also major participants, pressing the parties to move quickly.
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