Another Shoe Drops: Citigroup Acquires Wachovia

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STEVE INSKEEP, host:

NPR's business news starts with another takeover of a failing bank. The bank is Wachovia, it's one of the biggest in the country, and it got in trouble because of bad mortgage market investments and the credit crunch. This morning, regulators at the FDIC, the Federal Deposit Insurance Corporation, announced that Citigroup will buy Wachovia's assets and liabilities with some help from the FDIC. The head of the FDIC says Wachovia customers can expect business as usual. But bank analyst Karen Shaw Petrou says this deal is extremely unusual.

Ms. KAREN SHAW PETROU (Managing Partner, Federal Financial Analytics): It reflects the stress in the markets and the need for creativity of a sort never seen before, by both the FDIC, the Treasury and institutions seeking to survive in this market.

INSKEEP: In order to get Citigroup to do the deal and prevent Wachovia from failing and ending up entirely in its lap, the FDIC agreed to absorb losses above a certain amount. In return for taking on that risk, the FDIC will take a stake in Citigroup using something called a warrant.

Ms. SHAW PETROU: What does this mean? Because the rescue plan Congress is adapt- is adopting today, or the House anyway, also gives Treasury warrants in institutions to protect the taxpayer. The House and Congress have decided that if a bank goes to the Treasury and takes some of its money, Treasury will get a stake in the bank. So we, you, me, I, all of us as taxpayers are about to be bankers.

INSKEEP: Treasury Secretary Henry Paulson praised this deal and says Wachovia's failure would have been a serious threat to the financial system. In spite of all the financial troubles, some people do still have money, in case you were worried about that. Some magazines rank this next person we'll talk about the richest or second richest person in the world. Not Bill Gates. Not Warren Buffett. Carlos Slim. The Mexican billionaire is barely known in the United States.

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