Citigroup to buy Wachovia with FDICs help, European lenders getting bailouts
Posted on September 29th, 2008 by bile Tags: bailout, bank, bank deposits, bank-rescue package, Belgium, Bradford, Bradford & Bingley Plc, Britain, Citigroup, Europe, FDIC, Federal Deposit Insurance Corporation, Fortis, fractional-reserve banking system, Germany, Hypo Real Estate Holding AG, insolvency, Lehman Brothers Holdings Inc., London, Luxembourg, Mamoun Tazi, MF Global Securities Ltd., The Netherlands, United States, Wachovia bankhttp://www.washingtonpost.com/…
Citigroup has agreed to buy Wachovia bank in a deal brokered by the Federal Deposit Insurance Corporation to avoid another major corporate failure in the midst of the ongoing financial crisis.
The FDIC announced the deal on its Web site this morning. No price for the transaction was included in the announcement. But the FDIC said that the deal hinged on a loss sharing arrangement between Citigroup and the FDIC, the agency responsible for insuring bank deposits.
Wachovia has been saddled by mortgage-related losses. Under the terms of the deal, Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will be responsible for any losses beyond that, but was given $12 billion in Citigroup preferred stock and warrants in return for that guaranty.
The FDIC statement emphasized that Wachovia “did not fail,” and that its branches and other offices will be open as usual.
European governments stepped in to rescue Fortis, Bradford & Bingley Plc, and Hypo Real Estate Holding AG as tremors from the U.S. credit crisis reverberated around the world.
The U.K. Treasury seized Bradford & Bingley, Britain’s biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.
The interventions exposed how fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy and prompted a $700 billion U.S. bank-rescue package has gone global. It also added urgency to negotiations among European policy makers as to how they deal with banking collapses.
“The precarious global environment means the weakest links in Europe are now falling,” said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London. “If banks continue not to lend to each other we’ll see more failures.”
More insider deals, more centralization, more government interference and control.
This is what happens when you have a system based on debt on a large scale. It’s inherently insolvent.
Update:
Federal Reserve Chairman Ben Bernanke said in a statement the FDIC action “demonstrates our government’s unwavering commitment to financial and economic stability.”
