A Wachovia sign in Atlanta.
A Wachovia sign in Atlanta. - 
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Kai Ryssdal: I can pretty much guarantee you that on most any other day this next item would've been the top story. One of the biggest banks in the country, Wachovia, has sold itself to Citigroup, which, as it happens, is the biggest bank in the country in terms of assets.

As has been the pattern for the past month or so, there were intense negotiations over the weekend. Citi will pay just over $2 billion -- that's about a dollar a share -- for Wachovia, a stock that was worth about $10 a share on Friday. It's a bargain basement price, but should the buyer beware? Marketplace's Jeremy Hobson reports from New York.

Jeremy Hobson: Typically when banks buy each other, they do so privately. But typically doesn't apply anymore. Karen Petrou is managing partner at Federal Financial Analytics.

Karen Petrou: This is not a private sector transaction. This is a government rescue.

In order to get Citi to buy Wachovia, the FDIC promised to shoulder most of the potential losses. There are a lot of them. Wachovia purchased a California lender in 2006, which was riddled with bad mortgages. That's added to what is now $312 billion in loans on Wachovia's balance sheet.

Petrou: Citi is at risk for only $42 billion of that portfolio. The rest of the $312 (billion) goes to the FDIC.

In exchange the FDIC will get $12 billion worth of Citi preferred stock and warrants. Petrou says guaranteeing that Wachovia debt was a risk the FDIC felt it had to take. Especially, she says, after Wachovia customers started pulling their money out of the bank late last week.

Petrou: It confronted a lot of extraordinarily unappealing choices and picked the one it believes was the least-cost resolution.

And on paper, it certainly looks like a good deal for Citi, says Anant Sundaram, finance professor at Dartmouth's business school. But he says putting two cash-strapped banks together doesn't guarantee the survival of either one.

Anant Sundaram: What does this combination achieve for systemic risk in the system that these two being separate could not have? The honest answer has to be it is not clear.

Sundaram says the speed at which the deal came together didn't help. He wonders whether Citi had adequate time to assess the risks it will soon own.

In New York, I'm Jeremy Hobson for Marketplace.

Follow Jeremy Hobson at @jeremyhobson