By purchasing Wachovia Corp., Citigroup which is receiving federal aid on the deal will pick up additional market share in both residential lending and servicing, challenging Bank of America, Chase, and Wells Fargo for the top perch in the industry.
Among servicers, Wachovia had a 2.09% market share. In lending, Wachovia's share was much higher 3.89%. When the dust settles from the recent spate of acquisitions, the mortgage industry will have four $1 trillion-plus servicers: Bank of America ($2.09 trillion), Wells Fargo ($1.50 trillion), Chase ($1.45 trillion), and Citigroup ($1.02 trillion).
Early yesterday morning the Federal Deposit Insurance Corp. (FDIC) announced that Citigroup would buy the ailing Wachovia through an "open bank transaction" in which no federal money will be provided at first but the agency is potentially on the hook for Wachovia's mortgage losses most of which are tied to risky payment-option adjustable-rate mortgages.
By agreeing to buy Wachovia, Citigroup will absorb the first $42 billion in losses on a $312 billion pool of loans. "The FDIC will absorb losses beyond that," the agency said in a statement. To compensate the government for bearing the risk of potential losses, the FDIC was given $12 billion worth of Citigroup preferred stock and options.