Banks: Then there were Three…
CitiGroup buys Wachovia assets. (via NYT)
Citigroup will acquire the banking operations of the Wachovia Corporation, the Federal Deposit Insurance Corporation said Monday morning, the latest bank to fall victim to the distressed mortgage market.
Citigroup will pay $1 a share, or about $2.2 billion, according to people briefed on the deal.
Wachovia will still own brokerage assets, per the article, they “will continue to own the retail brokerage firm AG Edwards and the money management arm Evergreen.”
Now this is important. Wachovia did not fail says the FDIC - this is simply another purchase of assets by one bank by another. yeah right. Just another day at the office. A year ago Wachovia’s stock was trading at 50.
The F.D.I.C. said that the agency would absorb losses from Wachovia above $42 billion and that it would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk.
“Wachovia did not fail,” the F.D.I.C. said, “rather it is to be acquired by Citigroup Inc. on an open-bank basis with assistance from the F.D.I.C.”
Under the deal, Citigroup will acquire most of Wachovia’s assets and liabilities, including $400 billion in deposits and will assume senior and subordinated debt of Wachovia, the F.D.I.C. said.
Now this is really important. Concentration of power.
The sale would further concentrate Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup. Together, those three would be so large that they would dominate the industry, with unrivaled power to set prices for their loans and services. Given their size and reach, the institutions would probably come under greater scrutiny from federal regulators. Some small and midsize banks, already under pressure, might have little choice but to seek suitors.
So who needs regulation anyway? Apparently we do and will need it to offset this concentration of power.
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