in a deal that gives the government a stake in one of the nation's biggest banks.
The Federal Deposit Insurance Corp.
made the announcement that further reshapes the troubled US banking sector saddled with heavy losses from the bursting of the real estate bubble.
"Wachovia did not fail; rather, it is to be acquired by Citigroup Inc.
on an open bank basis with assistance from the FDIC," the government agency said.
The government will get a stake in Citigroup in exchange for guaranteeing a large portion of the distressed Wachovia assets linked to housing.
Citi will assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia; the FDIC will absorb losses beyond that and take a stake in Citigroup for the guarantee.
Citigroup has granted the FDIC 12 billion dollars in preferred stock and warrants to compensate the FDIC for bearing this risk, according to an FDIC statement.
The US government's engineered bailout of Wachovia, a major US bank hammered by mortgage-related losses, was taken in agreement with Federal Reserve