According to Citigroup'sadvertising slogan, "Citi never sleeps". For the past few weeks, its executives have not been getting much rest either.
After looking very closely at Washington Mutual, the failed lender that ended up with JPMorgan Chase, Citi swallowed another US regional banking powerhouse in the early hours of Monday morning.
After a weekend of fraught talks, repeatedly in danger of collapsing, Citi emerged with a government-brokered takeover of the banking operations of Wachovia, the sixth-largest US lender.
The move is a significant change in strategy for the group, shifting its centre of gravity away from high-risk, high-reward corporate and investment banking to the steady but less profitable retail sector.
To finance the deal, which will see Citi pay $2.2bn (Euro 1.5bn, £1.2bn) in shares and assume $53bn of Wachovia's debt, the group will raise $10bn in new shares and cut its dividend for only the second time since 1968, according to Reuters Fundamentals.
Bankers said Citi heard from regulators it had won Wachovia at 4am after Wells Fargo, the other remaining bidder, pulled out after failing to secure sufficient government risk guarantees. Wachovia's shares had been plummeting for weeks amid fears over its health.
Citi, by contrast, has agreed to shoulder the first $42bn of losses on $312bn of Wachovia's assets, which include its toxic mortgage book and property assets.
The Federal Deposit Insurance Corporation, the US banking watchdog, will assume any loss beyond that. In return, the FDIC will get a $12bn stake in Citi in the form of preferred shares with a 6 per cent dividend and warrants.
If all the warrants are exercised, the non-voting holding, which was equal to 11 per cent of Citi's market value at Monday's share price, could turn the regulator into one of Citi's largest shareholders. The presence of a US government entity on Citi's shareholder register underlines the unique nature of the Wachovia deal.
Citi's chief executive Vikram Pandit described it as "historic" and said the acquisition of Wachovia's $400bn-plus of retail deposit would catapult Citi to the top of US retail banking.
The deal will bolster Citi's retail banking presence in the US, trebling the number of branches to more than 4,000 and providing it with a $600bn deposit base that could act as a valuable funding source at a time when capital markets are frozen.
Yet, acquiring Wachovia at a time when the US faces the worst downturn since the Depression is a high-stakes move by Mr Pandit. Citi provided a glimpse of the plight of US consumers when it said credit provisions in the third quarter would be about $10bn, partly because credit losses are running at a 20-year record. It also warned that net income in the third quarter would decrease from the second quarter and it would suffer some $5bn in writedowns on mortgage-backed assets and securitisations.
