In what has truly become a Darwinian process of survival of the fittest, or at least the barely standing,  Citibank won a bidding war with Wells Fargo and is acquiring Wachovia Bank in an all stock asset purchase agreement (links to sample asset purchase agreements here, as the actual transaction hasn’t been publicly filed yet). 

For only $2.2 billion in stock, Citigroup is acquiring Wachovia’s enormous deposit network, $300 billion worth of Wachovia’s loan portfolio and about $53 billion in Wachovia debt.  As part of a separate arrangement with the Federal Deposit Insurance Corporation, the FDIC will be responsible for anything in excess of $42 billion in losses on that loan portfolio.

Portions of Wachovia will remain independent and publicly traded, such as its brokerage business, which acquired A.G. Edwards last year for $6.7 billion, and its Evergreen investment management division, which has nearly $250 billion in assets under management.

Citigroup and some of the other large surviving banks, such as Bank of America and JPMorgan Chase, are clearly making very aggressive moves to buy market share for bargain basement promises.  Along the way, they are needing to recapitalize as well to cover losses in their own portfolios as well as their newly acquired businesses.  To help finance the asset purchases, Citigroup is raising $10 billion through a sale of common stock, slashed its dividend, and it has been working to divest itself of some $400 billion in assets in a move to reorganize and focus on what it sees to be its core growth opportunities.  Lots of operating and financial risk there, if you ask me.