The FDIC just brokered a deal whereby CitiGroup will take over the bulk of Wachovia's assets and liabilities, though the FDIC says the brokerage, retirement and asset management businesses (including A.G. Edwards and Evergreen) will be staying independent.

A spokeswoman for Evergreen said it was "too preliminary" to comment on the possible implications of the deal for its unit.

Mr. Market thinks there is still another shoe to drop with this deal, however. At 3:00 pm on Monday, after a being frozen for a period following the announcement of the deal, Wachovia's stock was trading around $1.80 to $2.00 a share, far below even the $10 a share it was trading for at close Friday.

If Wall Street thought this deal was going to work out the way the FDIC laid out, the stock would be more valuable than even the $10 dollars a share it was trading at on Friday. The two parts of the company left with the holding company are the most valuable units. Neither one is saddled with he bad mortgage debt that Wachovia's bank was holding because of tis purchase of mortgage lender Golden West.

Paulson and his crew may not even yet know how the new company will be structured. It seems doubtful that the shareholders of the failed company will be rewarded with the two most valuable pieces of the company.

Paulson may opt to sell off both the brokerage and Evergreen but but the problem in that scenario would be who gets the profits: the shareholders, the public, CitiGroup - who knows?

Here's a piece of the FDIC announcement:

Citigroup Inc. will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. 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.

A statement by Wachovia offered no more significant details. In fact the most significant thing about the release was what it omitted, namely any mention of the FDIC's role in the transaction. AS advisors on the deal it instead mentions Goldman Sachs, Perella Weinberg Partners and Wachovia Securities.

Wachovia Statement

CHARLOTTE, N.C., Sept. 29 -- Wachovia today announced intentions to sell its retail bank, corporate and investment bank and wealth management businesses to Citigroup. Wachovia Corporation will remain a public company with two main operating subsidiaries: Wachovia Securities, the nation's third largest brokerage firm, and Evergreen Asset Management, a leading provider of asset management services.

"During recent weeks, the financial landscape has changed significantly and presented us with unprecedented challenges," said Robert K. Steel, CEO and President of Wachovia. "Today's announcement is the best alternative for the company, enabling a resolution on the Golden West portfolio."

Under terms of the transaction, Citigroup will pay $2.1 billion to Wachovia and assume the senior and subordinated debt of Wachovia Corporation.

The transaction is expected to close before year-end. It has been approved by directors of both companies and is subject to shareholder approval of Wachovia and the appropriate regulatory approvals.

Customers of both companies should continue banking as usual, and feel confident that their deposits are secure. Also, employees and vendors should continue to operate business as usual.

At this time, there are no changes to Wachovia's board of directors and two Wachovia directors will join Citigroup's board.

Wachovia Corp. will remain headquartered in Charlotte, N.C. Wachovia Securities will continue to be headquartered in St. Louis, MO. Citigroup will headquarter the retail bank in Charlotte and the investment bank in New York.

Wachovia's investment bankers were Goldman Sachs, Perella Weinberg Partners and Wachovia Securities, and its legal advisors are Sullivan & Cromwell and Simpson Thacher & Bartlett.

About Wachovia

Wachovia Corporation (NYSE: WB) is one of the nation's largest diversified financial services companies, with assets of $812.4 billion and market capitalization of $33.5 billion at June 30, 2008. Wachovia provides a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services to customers through 3,300 retail financial centers in 21 states from Connecticut to Florida and west to Texas and California, and nationwide retail brokerage, mortgage lending and auto finance businesses. Globally, clients are served in selected corporate and institutional sectors and through more than 40 international offices. Our retail brokerage operations under the Wachovia Securities brand name manage more than $1.1 trillion in client assets through 14,600 financial advisors in 1,500 offices nationwide. Online banking is available at wachovia.com; online brokerage products and services at wachoviasec.com; and investment products and services at evergreeninvestments.com.

Check back for more info as this story develops.  

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