Bankruptcy

More on Citi Deal for Wachovia

By J. Michael McBride

“The FDIC in a press release stressed that Wachovia did not fail. Citi will take the hit for up to $42 billion of losses on a $312 billion pool of Wachovia loans, while the FDIC will take responsibilities for additional losses. It granted the FDIC $12 billion in preferred stock and warrants for assuming the risk.

Citi, in a separate release, said it will pay Wachovia $2.16 billion in stock and assume its senior and subordinated debt, totaling approximately $53 billion.

Additionally, Citi said that it would raise $10 billion in common stock and cut its quarterly dividend in half to 16 cents a share. Citi's Tier-1 capital ratio is expected to be 8.8% upon completion of the deal, it said. …Citi is acquiring more than $700 million in assets through Wachovia's banking operations. It will be responsible for the first $30 billion of losses on Wachovia's loan portfolio and will record them under purchase accounting when the deal closes, expected to be completed by the end of the year. The company will then be responsible for the next $12 billion of losses up to a maximum of $4 billion a year over the next three years.”

Here is a link to this article from TheStreet.com:
http://www.thestreet.com/story/10439747/1/citi-buys-wachovia-banking-operations.html

Michael

PS One interesting note I read said that Citi may end up under the 700 billion bailout legislation being able to sell the bad loans it is buying from Wachovia to the government for more money tomorrow than it paid today….stay tuned. M.

Full post as published by Texas Lawyer Blog on September 29, 2008 (boomark / email).