Citi buys Wachovia banking in flurry of deals

By Christopher Kaufman and Jonathan Stempel

NEW YORK (Reuters) - Citigroup Inc (C.N: Quote) set a deal to buy regional powerhouse Wachovia Corp's WB.N banking operations, one of several U.S. tie-ups triggered by the deepening financial crisis on Monday.

Banks are struggling to come to grips with a crisis that has led Goldman Sachs Group Inc (GS.N: Quote) and Morgan Stanley (MS.N: Quote) to rein in their high-risk business models, forced the shotgun sales of Bear Stearns Cos and Merrill Lynch & Co Inc MER.N and brought the bankruptcies of Lehman Brothers Holdings Inc (LEHMQ.PK: Quote) and Washington Mutual Inc (WAMUQ.PK: Quote).

"It just seems that there are only going to be two types of banks in existence now: the ones that survive and get market share, or the ones that get gobbled up and have to be euthanized," said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.

Citigroup's $2.16 billion all-stock purchase of Wachovia assets was brokered by U.S. regulator Federal Deposit Insurance Corp. U.S. Federal Reserve Chairman Ben Bernanke said it would foster financial stability.

Also on Monday, Morgan Stanley sold a stake to Japan's Mitsubishi UFJ Financial Group Inc <8306.

Citigroup, which holds billions of dollars of toxic mortgage assets, could potentially have been a major beneficiary of the bill.

Still, its shares, while down 11.9 percent, actually lagged the overall decline in big banks as measured by the KBW Banks index .

"I wouldn't think it (the bailout failing) would make any difference," said Peter Kovalski, a portfolio manager and bank analyst at independent asset manager Alpine Woods Investments. "I think they're getting (Wachovia) at a fire sale price, this is a once in a life time deal for Citi."