With Citigroup Inc.'s government-brokered deal to swallow up most of rival Wachovia Corp., the country moves a step closer to a banking landscape dominated by a handful of goliaths.
The diversified operations and national retail footprints of these super banks -- Citigroup, Bank of America Corp. and JPMorgan Chase & Co. -- draw comparisons to the banking business in other highly developed nations, whose financial systems are dominated by a few gigantic banks overseen by a single powerful regulator.
"I don't know if the government is inadvertently or intentionally building giant financial companies like in Japan or the U.K., but it's turning out that way," said Gerard Cassidy, an analyst who follows banking companies for RBC Capital Markets.
New York-based Citigroup, the largest U.S. bank by assets, agreed Monday to pay $2.16 billion for Wachovia's banking operations and also to shoulder the first $42 billion in losses on a $312-billion pool of troubled Wachovia loans.
The loans include adjustable-rate mortgages inherited from Oakland-based Golden West Financial Corp., the parent of World Savings, which Wachovia acquired in 2006.
The Federal Deposit Insurance Corp. would be on the hook for losses over $42 billion, but the FDIC said it didn't expect any losses. Depositors won't lose a dime, even on uninsured deposits, the FDIC said, just as they were fully protected last week when JPMorgan Chase took over Washington Mutual Inc.
Citigroup also took over Wachovia's obligations to its bondholders. But Charlotte, N.C.-based Wachovia itself -- what remains is mainly its brokerage and a unit that manages funds for institutional investors -- saw its stock hammered.
The shares already had been down 74% for the year as delinquencies increased on Wachovia's adjustable-rate home loans, commercial real estate loans and Wall Street operations. They fell from $10 to $1.84 on Monday, an 82% decline for the day.
The deal, the latest in a series of emergency transactions reshaping the tottering banking industry, could result in closures of some bank offices in California. Citibank has 382 branches in California, according to the FDIC website, and Wachovia Bank has 176.
Banks typically close some branches and eliminate jobs of support staffers to cut costs after taking over a rival. Citigroup said it would close less than 5% of the combined banks' branches but didn't break out a California figure.
