CitiGroup 2 time loser

Filing Favors J.P. Morgan's WaMu Bid Over Citi's

Excerpt:

Citigroup Inc.'s unsuccessful bid for the teetering banking operations of Washington Mutual Inc. proposed that the U.S. government absorb a majority of the thrift's loan losses and limited Citigroup's financial exposure to $10 billion, according to a document released by regulators.

Terms of the offer by the New York bank previously were kept secret by the Federal Deposit Insurance Corp., which sold the failed banking units to J.P. Morgan Chase & Co. for $1.88 billion in September 2008. The document was disclosed following a Freedom of Information Act request by The Wall Street Journal.

The document appears to weaken claims by Washington Mutual's now-bankrupt parent company that the FDIC bent over backward to give J.P. Morgan a sweetheart deal on Washington Mutual. Citigroup offered no upfront cash as part of its bid and didn't want to assume Washington Mutual's uninsured deposits.

Citigroup also wanted the FDIC to cover 80% of "first losses" on the thrift's loans, including mortgages battered by declining real-estate values. Losses by the New York bank on the remaining 20% would have been capped at $10 billion, the document shows, with the FDIC stuck with any additional loan losses.

In comparison, J.P. Morgan sought and received no loss-sharing agreement from the FDIC. It also took control of all deposits held by Washington Mutual, whose collapse was the largest bank failure in U.S. history. "It would appear from publicly available documents that J.P. Morgan was far and away the best bidder," said Kevin Starke, an analyst with CRT Capital Group LLC in Stamford, Conn. "In hindsight, Citi's bid was too conservative."

J.P. Morgan and Citigroup were the only banks to bid for Washington Mutual as part of the auction process that is customary when insured U.S. banks and savings institutions fail. Under federal law, the FDIC must accept the "least-cost" offer from potential acquirers.

"The FDIC was able to sell WaMu through an unassisted transaction that protected all depositors and resulted in zero exposure to the government," an FDIC spokesman said. "No other bid accomplished this." Citigroup, J.P. Morgan and the Washington Mutual holding company, now in bankruptcy proceedings, declined to comment.

Comment: Also lost out on Wachovia