Wachovia Customers: What You Should Know

Wachovia says it's selling the firm's retail bank, corporate and investment bank, and wealth management businesses to Citigroup pending shareholder and regulatory approval.

This isn't a bank failure. Wachovia's banking operation has been acquired by Citigroup but it will continue to operate as an "open bank." If all goes as planned, there will be no changes for Wachovia customers. The Wachovia name will stay on the branches. In fact, the headquarters for the retail bank will remain in Charlotte, N.C.; the investment bank will move to Citigroup headquarters in New York.

Wachovia Corp. remains a public company with two main subsidiaries -- Wachovia Securities, a brokerage firm, and Evergreen Asset Management, a provider of asset management services.

Just as JP Morgan Chase did last week with Washington Mutual, Citigroup has taken Wachovia's uninsured deposits. In other words, consumers won't lose a dime, and the FDIC won't have to tap its fund to cover insured deposits.

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The FDIC, however, says it has entered into a "loss-sharing arrangement on a pre-identified pool of loans." Citigroup will absorb up to $42 billion of losses on the $312 billion pool. The FDIC will absorb any losses beyond that. In return, Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the agency for the risk.

For a better understanding of the Wachovia/Citigroup deal and what is happening in the consumer banking arena, we spoke with Jim Eckenrode, banking and payments research executive at TowerGroup in Needham, Mass.

Bankrate: Citigroup has acquired Wachovia's banking assets. What, exactly, is included in banking assets?

Eckenrode: The banking operations -- the branches, the ATMs, the deposits and loans. Essentially, Wachovia has sold its banking business to Citigroup. Wachovia will continue to operate as an independent entity with its retail brokerage, asset management and capital markets business intact for the moment.

Bankrate: What do you mean by "for the moment"?

Eckenrode: Events are progressing so rapidly these days you just don't know what will happen.

Bankrate: Interestingly, this is another deal in which the uninsured deposits are being assumed by the acquiring institution. But it looks as though the FDIC is still on the hook to some extent.

Eckenrode: If you look at the bailout bill itself, the terms of this deal are very similar to what is set forth in the bailout bill. The FDIC, in compensation for risks assumed, has the right to insist upon compensation in the form of warrants, preferred stock or any other value in the firm from which they're buying assets. This is the first deal of its type, I think, this week anyway, that pretty much conforms to what the lawmakers have been wrangling about for the last week or two.

Bankrate: This is very different from the JP Morgan Chase deal for Washington Mutual where WaMu is ceasing to exist.

Is there more to come?