Citi will pay $2.1bn (£1.16bn) to Wachovia, the fourth largest US bank, and will absorb $53bn (£29bn) of Wachovia debt.
Citi will acquire more than $700bn of assets of Wachovia’s banking subsidiaries, and related liabilities.
The Federal Deposit Insurance Corporation has agreed to provide loss protection in connection with approximately $312bn of mortgage-related and other Wachovia assets.
Robert Steel, chief executive and president of Wachovia, says: “During recent weeks, the financial landscape has changed significantly and presented us with unprecedented challenges. Today’s announcement is the best alternative for the company.”
Vikram Pandit, chief executive at Citi, says: “The transaction is extremely attractive from a strategic perspective. It will deliver the combined capabilities of two powerful organizations to our customers and shareholders.
“It will augment our access to stable funding and liquidity, and will accelerate our efforts to establish Citi as the world’s leading global financial institution.”
The news comes amid rumours that Swiss bank UBS will announce fresh write-downs at a shareholder meeting this week.