Wachovia, the fourth-largest US bank, is being bought by larger rival Citigroup in a rescue deal backed by US authorities.
Wachovia US job losses worse than expected ...
Mortgage giants up on debt sale ... customers were told the action would provide "full protection for all their deposits", and that the bank would continue to operate as normal.
Under the deal, Citigroup will absorb up to $42bn (Ј23bn) of Wachovia losses.
US authorities said the decision to back the sale had been made "under extraordinary circumstances".
The comment came from the Federal Deposit Insurance Corporation (FDIC), the government body that guarantees the safety of banking deposits.
"This action was necessary to maintain confidence in the banking industry given current financial market conditions," said FDIC chairman Sheila Bair.
Mortgage debt
Citigroup is taking on $312bn of Wachovia loans.
Any debts on these loans above the $42bn Citigroup will absorb will be taken on by the FDIC in return for $12bn in Citigroup stock and other share options.
Wachovia is just the latest bank that has needed to be rescued as a result of high levels of bad mortgage debt and the wider turmoil in the global financial sector.
Analysts said much of its problems were caused by its 2006 purchase of mortgage lender Golden West for $25bn at the height of the then US housing boom.
Rose Grant, of Eastern Investment Advisors, said it seemed a good deal for Citigroup.
"One thing that Citigroup has been wanting to do for a while is to expand its retail operations because they are in very limited areas so this would basically allow them to do that," she said.
(BBC)
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