Wachovia to keep some units after Citigroup deal

Citigroup Inc. will acquire the banking operations of Wachovia Corp., giving it about 3,300 more offices in 21 states. (Peter Morgan/Associated Press)

Citigroup Inc., the biggest US bank by assets, will pay about $2.16 billion for banking operations of Wachovia Corp. after shares of the North Carolina lender collapsed under the weight of overdue mortgages.

While regulators said the Charlotte-based bank hadn't failed, Wachovia will lose its biggest unit and investors will get only about $1 a share for the bank, whose stock topped $59 in April 2006. All depositors will be protected, according to the Federal Deposit Insurance Corp., which helped broker the takeover by Citigroup.

Wachovia agreed to the stock-swap transaction just hours before the US House of Representatives rejected a $700 billion bank industry bailout aimed at stopping the credit crunch that drove Lehman Brothers Holdings Inc. and Washington Mutual Inc. into bankruptcy and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos.

"The problem must have occurred last week with their ability to continue to attract and hold deposits after the failure of Washington Mutual," Gary Townsend of Hill-Townsend Capital in Chevy Chase, Md., said of Wachovia. "On Thursday and Friday they must have had a large run on the bank."

Wachovia's stock, which finished last week at $10 on the New York Stock Exchange, traded for $1.84 in 4:15 p.m. transactions, a loss of 82 percent for the day. It plummeted 83 percent in the past two years through last week. Citigroup fell 12 percent to $17.75 today.

Wachovia will continue to own its securities brokerage unit, the Evergreen mutual fund family, and insurance and retirement businesses. The brokerage has about 14,600 financial advisers and more than $1 trillion under management, making it third in the United States behind Merrill Lynch and Citigroup's Smith Barney unit.

The purchase gives New York-based Citigroup about 3,300 more branches and offices in 21 states. The combined company will have about 4,300 US bank offices and more than $600 billion in deposits for a 9.8 percent share of the US banking market. Citigroup's total deposits globally will be $1.3 trillion, the bank said, or about $350 billion more than JPMorgan Chase & Co.

Other banking stocks also were hit hard yesterday.

National City Corp. and Fifth Third Bancorp, Ohio's largest banks, led banking stocks lower as many plunged the most since July 1980.

National City, Ohio's biggest bank, dropped $2.35, or 63 percent, to $1.36. Fifth Third fell 44 percent to $9.11.

"It's pretty critical we get something done here because the credit system is seizing up," said Jeffrey Saut, chief investment strategist at Raymond James & Associates in a Bloomberg TV interview.

Cleveland-based National City has lost 92 percent of its market value this year while Cincinnati-based peer Fifth Third lost 64 percent. Moody's Investors Service said in a statement after regular trading it placed National City and subsidiaries on review for a possible downgrade on the bank's "exposure to significant real estate related credit costs."

"Fear appears to be trumping reality" with National City, Sandler O'Neill & Partners LP analyst Scott Siefers said in a note to investors Friday. He rates the shares "buy."