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Citigroup to buy Wachovia banking ops

- The Washington Times - Monday, September 29, 2008

UPDATED:

Megabank Citigroup acquired Wachovia Corp. Monday morning in a takeover hastily arranged by the Federal Deposit Insurance Corp. to prevent the bank with the largest operations in the Washington area from becoming the latest victim of the credit crisis.

The move to prevent Wachovia from succumbing to losses from a portfolio of an estimated $120 billion questionable mortgage loans failed to soothe the stock and credit markets, which plunged again Monday amid turmoil in credit and banking markets around the world.

Markets also took little comfort from progress on a $700 billion bailout for banks over the weekend, with a vote on the bill in the House scheduled Monday afternoon. The Dow Jones Industrial Average fell as much as 377 points at the open, while the interest rates on Treasury's 3-month bills fell nearly to zero as investors flocked to safe havens for security.

The fragile state of the credit markets forced the Federal Reserve and foreign central banks to stage their biggest money infusion to date of $620 billion Monday morning. A critical deadline looms Tuesday when corporations and banks have to roll over hundreds of billions in short-term debts.

Regulators came out en masse to try to calm markets and fretful investors and bank depositors. FDIC chairman Sheila C. Bair said that the Wachovia takeover does not represent a failure of the bank and will not cost the insurance fund or taxpayers any money.

"For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits," Bair said. "There will be no interruption in services and bank customers should expect business as usual."

Treasury Secretary Henry M. Paulson Jr., who worked through the weekend on a compromise bailout plan with Congress, said the Treasury and the Fed gave their blessings to the Wachovia takeover to prevent "a failure of Wachovia that would have posed a systemic risk" to the markets.

He said Wachovia's senior and subordinated debts will be assumed by Citigroup, which has had plenty of problems with bad mortgage debt of its own.

"In this period of market stress, we are committed to taking all actions necessary to protect our financial system and our economy," he said.

Fed chairman Ben Bernanke expressed hope that the bailout bill will eventually help to bolster confidence in financial markets.

"This legislation should help to restore the flow of credit to households and businesses that is essential for economic growth and job creation, while at the same time affording strong and necessary protections for taxpayers. I look forward to swift passage of the legislation," Bernanke said.