Wachovia, then, did not fail. But, semantics aside, its hurried sale to Citigroup helped by the Federal Deposit Insurance Corporation deals with another potential flashpoint by further extending the hand of government into the banking business. Dubbed “open bank assistance”, another savings and loan relic, Citi will pay $2.2bn for Wachovia’s banking operations. It takes on $700bn in assets and about $450bn in deposits, and will assume the senior and subordinated debt. The FDIC shares the risk on a $312bn asset portfolio, with Citi absorbing the first $42bn in losses, and receives preferred stock and warrants in Citi for its trouble.

Both Wachovia’s debt investors and the FDIC should be pleased. Bondholders in the bank will not be wiped out as were those in Washington Mutual. Depositors are safe and the FDIC parcels off Wachovia at no cost to its fund. That should aid other banks by limiting aggressive rises in insurance premiums. Such an outcome, though, was perhaps only possible because at least two bidders were competing to take Wachovia off their hands.

But has Citi, with little time to chew over the books, got its numbers right? It has yet to resolve its own difficulties, working a warning on third quarter earnings into proceedings on Monday. Its exposure to Wachovia’s nasties is capped at $30bn up front, followed by $12bn over three years. But a complex integration adds to the management’s already heavy burden.

Wachovia, the rump of which holds the shunned asset management and brokerage arms, was undone by acquisitions designed to transform it from a bog-standard bank into a full-service outfit. Its banking operations now join the biggest of them all, giving Citi the ballast of US retail deposits that it has struggled to build. Citi – previously an embarrassing subprime casualty – now counts alongside JPMorgan and Bank of America as one of the authorities’ bulwarks against this crisis. With limited options, Citi and its much-derided universal banking model get the nod.

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