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Citigroup cut a Better Deal

Posted by: Chris Palmeri on September 29, 2008


As my blog colleague Dean Foust lays out in an excellent story on, Citigroup could end up getting quite a deal on its $1 a share purchase of Wachovia.

The acquisition quadruples the size of Citigroup’s branch network to more than 4,400 locations. Whereas before the company was really just a player in New York, California and Texas, Citibank—as its branches are known— now has major positions in Florida, North Carolina, New Jersey and Pennsylvania. “Citigroup passed over Washington Mutual because they were focused on a bigger target: Wachovia.” says Bart Narter, senior vice president of the Banking Group at Celent, a Boston-based financial research and consulting firm. “Citigroup instantly becomes a major player in the Southeast and Mid-Atlantic regions.”

The deal could turn out to be a good one too for the F.D.I.C. which gets $12 billion in Citigroup preferred stock. The federal fund will only have to cough up money if the losses on mortgages Citigroup acquired top $42 billion, a very high number.

Unlike Washington Mutual investors, Wachovia shareholders are at least getting that $1 a share. There may be some additional assets for bondholders as Citigroup is not acquiring Wachovia’s AG Edwards brokerage firm. WaMu shareholders, by comparison, were wiped out. WaMu bondholders got more bad news. The firm, really just a shell at this point, declared bankruptcy. WaMu had some $ 6.8 billion worth of bonds outstanding, according to the research firm Gimmie Credit. On Friday they were trading at just 32 cents on the dollar.



BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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