Update 10/03/08: This Citigroup deal is dead. Wachovia is now merging with Wells Fargo. See post for more details.
The FDIC just issued this press release that Citigrop will acquire the banking operations of Wachovia:
Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.
Since it did not fail, there are no effects on any deposits. The FDIC claims that there is expected to be no cost to the Deposit Insurance Fund. However, the FDIC is taking on some risk:
The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.
There had been reports that Wells Fargo would be the one in this takeover. According to an analyst interviewed in this Bloomberg article "Citigroup isn't in a better position to bid than Wells. They've got their own problems." But I guess the help form the Feds allowed Citigroup to agree to this deal. Refer to this CNN article for more news of this deal.
How will this effect those with Wachovia CDs and Way2Save Accounts? I assume Citigroup will allow the CDs to continue at the same rate to maturity. It seems that in acquisitions that do not involve bank failures, CDs continue without change and without any new options of penalty-free early withdrawals. I have not seen or heard anything official on this.