MFO Calibre goes to Citi, Wachovia Securities stays home but may yet depart. Citigroup has agreed to acquire Wachovia's banking subsidiaries, including Calibre, the multifamily-office unit of Wachovia's Wealth Management unit. In exchange for $2.16 billion of its stock and the assumption of $53 billion of its subordinated debt, Citigroup stands to get more than $700 billion of assets of Wachovia's banking subsidiaries.

To help the deal along, the FDIC has agreed to provide loss protection on about $312 billion of mortgage-related and other Wachovia assets with Citi responsible for the first $42 billion of losses on this portfolio. For that the U.S.-government bank-deposit guarantor gets Citi preferred stock and warrants worth about $12 billion -- or over 10% of Citi's market capitalization today.

Citi says it plans to raise $10 billion and cut its quarterly dividend in half to 16 cents to shore up its capital requirements as it works to absorb Wachovia's 3,300 bank branches.

A question

The transaction -- assuming Wachovia shareholders approve it -- is expected to close by year end.

Charlotte, N.C.-based Wachovia will remain a publicly traded company in possession -- for now -- of its fund company Evergreen Investments, which managed $246 billion at the end of June, and a majority stake in Wachovia Securities, the retail-brokerage business of Wachovia Wealth Management.

But Alois Pirker, a senior analyst with Boston-based business consultancy aitegroup.com Aite Group, wonders if Wachovia Securities -- which is about one-third owned by Prudential Financial -- makes sense as a standalone business.

"Wachovia went through a big effort to establish a brokerage force that is also well integrated with its banking operation and Citi is trying to do something similar with Smith Barney," says Pirker. "Will Citi take this occasion to acquire Wachovia Securities outright and create one of the largest retail brokerage forces in the country?"

Wachovia Securities had 14,600 advisors in 1,500 offices in the U.S. and $1.1 trillion in client assets at the end of June 2008. If purchased by Citi and merged with Smith Barney, Wachovia Securities would be part of the world's biggest retail brokerage in assets under management and number of reps, surpassing even the enlarged Merrill Lynch that's expected to come out of its impending takeover by Bank of America. Citi isn't saying how it plans to use Calibre, Wachovia's Philadelphia-based ultra-high-net-worth advisory. -FWR

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