Citigroup will acquire the banking operations of Wachovia Corp.in a deal that was “facilitated by the Federal Deposit Insurance Corporation,” it was announced this morning. The FDIC is emphasizing that Wachovia “did not fail” but will absorb any losses beyond $42 billion on a $312 billion pool of Wachovia loans in a “loss sharing” arrangement. The unusual agreement – which the FDIC has labeled “open bank assistance” effectively places a ceiling on Citigroup’s exposure to Wachovia’s loan portfolio.
“This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury,” Bair said. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.” Wachovia bank branches will be open today for business as usual.
The sale adds to the extraordinary consolidation of financial IT operations and data center assets through distress sales driven by the Wall Street lending crisis. Wachovia spends about $2 billion annually on IT. In 2006 it opened a $400 million data center in Birmingham, Alabama to support two existing facilities in Winston-Salem, N.C. Wachovia has implemented advanced virtualization strategies, as well as a 3D mapping tool for the company’s data center operations.