Citigroup is to acquire the banking operations of Wachovia Corp of the US, the Federal Deposit Insurance Corp has announced. Earlier today reports had indicated that Wells Fargo was to be the purchaser.

Citigroup will pay $1 a share, or about $2.16 billion. The deal will create the largest US bank by total deposits said Citigroup in a statement.

Wachovia will remain a public company and retain its asset management, retail brokerage, and certain select parts of its wealth management businesses, including the Evergreen and Wachovia Securities franchises.

The Charlotte based bank organisation has what the statement calls a small successful private banking business that Citi intends to integrate into its existing Global Wealth Management business. 

"There will be no interruption in services and bank customers should expect business as usual," FDIC Chairwoman Sheila Bair said.

Citi will acquire most of Wachovia's assets and liabilities.  It will absorb $42 billion in Wachovia losses on a $312 billion pool of loans.

Wachovia shares had fallen in premarket activity;  Citigroup was up 1.8 per cent to $20.50.

The transaction, which has been approved by the Boards of Directors of both companies, is subject to: approval by Wachovia's shareholders; to the occurrence of the closing by 31 December 2008; definitive documentation and regulatory approvals.

The deal is expected to be accretive to Citi's earnings from year one excluding a total of $3.7 billion in pre-tax restructuring charges for severance over the next four years, and expected to be fully accretive in 2010. 

Citi expects to raise $10 billion in common equity in connection with this transaction and reduce its quarterly dividend to 16 cents per share, effective immediately, to maintain the company's strong capital position. 

On a pro forma basis for the second quarter ended 31 June 2008, Citi's Tier 1 capital ratio is expected to be 8.8 per cent assuming completion of the transaction.