Citigroup Acquires Wachovia Banking Operations, Profit-Sharing With FDIC

Citigroup will acquire the banking operations of Wachovia and enter into a profit-sharing (or rather loss-sharing) agreement with the FDIC on the future performance of $312 billion in loans on Wachovia's books. Citigroup has agreed to assume the first $42 billion in losses on the loans with the FDIC responsible for the rest. In return the FDIC is getting $12 billion in preferred shares in Citi to compensate the federal agency for assuming the risk. Frankly, I'm not sure $12 billion in crappy Citi preferred is worth assuming $270 billion in downside risk on a portfolio of mortgage-related assets but I'm not going to knock the FDIC. I'm still impressed with Sheila Blair for making $1.9 billion on the WaMu seize-and-flip to JP Morgan. Maybe we should put her in charge of the Bailout Fund. In any event, bondholders are happy as Citi has assumed Wachovia's senior and sub debt. Equity holders appear to be wiped out. Now that the Wachovia issue is resolved, we move on to the next question: Who's going to bail out Citigroup?