Research and Statistics

Citi buys Wachovia’s banking, credit card assets


FDIC and the Federal Reserve back Citi’s purchase of Wachovia Bank’s retail banking assets.

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See later development: Wells Fargo makes bid to merge with Wachovia

Citi agreed to buy Wachovia Bank’s retail banking subsidiaries and other operations in a deal backed by federal guarantees to protect depositors, banking officials and regulators announced early Monday.

Citi — the No. 3 U.S. credit card issuer behind Bank of America and JP Morgan Chase — will take over Wachovia’s retail banking operations, which include direct issuance of credit cards.

Wachovia issued a statement Monday afternoon saying customers of both banks should continue with “business as usual.”

In a telephone interview, spokeswoman Mary Eshet said, “Nothing has changed. No one needs to worry about anything happening today or tomorrow.” Asked how Wachovia customers with rewards points would fare if transferred to Citi’s rewards program, Eshet said, “It’s too early to say specifically or give details around that kind of thing. I am confident they will do something that’s very attractive to customers.”

Credit card accounts
Generally, credit card accounts of banks that fail or are acquired are transferred to the new lending institution and cardholders must continue to make on-time payments to the new issuer. (See: What happens to credit debt when a bank fails and Credit crisis survival tips)

Wachovia has a relatively small credit card division. Wachovia’s credit card accounts held about $2 billion in outstanding balances at the end of 2007, according to its quarterly reports. Citi had $110 billion in outstanding balances.

Wachovia’s website lists Visa Classic, Signature and Platinum credit cards with variable annual percentage rates ranging from 6.99 percent to 16.99 percent. The bank also issues debit cards and check cards tied to checking and savings accounts.

Citi issued a statement early Monday saying it had “reached an agreement-in-principle” that would create the largest U.S. bank in terms of total deposits with 9.8 percent of the U.S. deposit market and $1.3 trillion in worldwide deposits.

“The transaction is extremely attractive from a strategic perspective,” Citi CEO Vikram Pandit, said in the statement. “It will deliver the combined capabilities of two powerful organizations to our customers and shareholders …” The sale is expected to be finalized by the end of the year.

Days after WaMu failure
The acquisition comes within days of the Sept. 25 failure of Washington Mutual — the largest bank failure in U.S. history. Regulators were quick to point out that “Wachovia did not fail,” according to an FDIC news release. “Rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.”

Added FDIC chairman Sheila Bair: “For Wachovia customers, today’s action will ensure seamless continuity of service from their bank and full protection for all of their deposits. There will be no interruption in services and bank customers should expect business as usual.”

The FDIC has agreed to a loss-sharing arrangement with Citi to cover Wachovia’s pool of $312 billion of bad mortgage loans. Citi will absorb up to $42 billion of Wachovia’s losses and the “FDIC will absorb losses beyond that,” according to the FDIC. In return for this risk, Citi is to grant the FDIC $12 billion in Citi preferred stock and warrants.

In the deal, Wachovia will keep its asset management, retail brokerage and parts of its wealth management businesses, including Evergreen and Wachovia Securities franchises. Citi would pay $2.16 billion in stock to Wachovia and assume $53 billion of the bank’s senior and subordinate debt.

Federal authorities, who consulted with President Bush, the Treasury Department and Federal Reserve before backing the acquisition, agreed to assist in the sale “to avoid serious adverse effects on economic conditions and financial stability.” News of the Wachovia-Citi merger came as lawmakers were considering a vote on a $700 billion bank bailout plan.

The Fed’s Richmond, Va., branch is on call to provide liquidity, if needed, to the Charlotte, N.C.-based Wachovia, the Fed said in a release.

Where to call
The FDIC recommended Wachovia customers with questions to call their normal banking representative or service center at (800) 922-4684, go to or contact the FDIC’s consumer hotline at (877)-275-3342.

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