INSTANT VIEW: Citi to buy Wachovia operations with govt help

NEW YORK (Reuters) - The Federal Deposit Insurance Corp on Monday said that Citigroup was buying the operations of Wachovia Corp in a deal that would see the government backstop any losses beyond $42 billion on the bank's $312 billion pool of loans.

Wachovia shares plunged 90 percent in premarket trading, while Citi shares fell 5.4 percent after additionally gaining more than 3 percent.

The following is reaction from industry analysts and investors:

MATT MCCORMICK, PORTFOLIO MANAGER AND BANKING ANALYST AT BAHL & GAYNOR IN CINCINNATI

"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."

"Wachovia overreached is the only exit strategy that the market would allow them."

"I think what (Citigroup) is looking at is a great opportunity to buy some crown jewels...they feel there's some value...It's going to be interesting to see how they make it work."

THIERRY LACRAZ, STRATEGIST AT SWISS BANK PICTET, GENEVA

"We live in extraordinary times -- it's become very normal for a big bank to disappear quickly. It's positive that Citi is buying Wachovia because that diminishes risk.

Now people are focusing on the U.S. plan, which goes in the right direction and should diminish tension on short-term interbank lending but may not necessarily be good at a micro level for the banks.

DAVID BUIK, STRATEGIST AT CANTOR INDEX, LONDON

"This cannot be allowed to go on like this. This is hopeless. They are going to dump this stuff into the pot soon. They need to be taking this stuff off the street sooner rather than later. The trouble is toxic."

CRAIG PECKHAM, EQUITY TRADING STRATEGIST AT JEFFERIES & COMPANY IN NEW YORK

"I think that the bottom line here is that the acquisition of Wachovia doesn't take anyone by surprise -- the consideration to shareholders as measly as it is takes people by surprise and really acts as yet another warning about how quickly asset values and liquidity are deteriorating.

While Wachovia may not have been technically a failure the deal is certainly being managed as though it was an institution on the brink and that is born in the kind of value that Wachovia shareholders are recovering from this deal.

The irony is that while in the last 72 hours a lot of progress was being made in Washington on this intervention in the credit markets, we still saw money market conditions worsen considerably to all-time adverse extremes. It really tells you the market is not buying into this as any kind of panacea."

JAMES O'SULLIVAN, ECONOMIST, UBS SECURITIES, STAMFORD, CONNECTICUT

"It's more of the same, There's more consolidation here. On one hand, are we getting to the end of this or this is telling you that there're more problems."

"The financial sector is under extreme stress. The credit crunch is intensifying and that will put downward pressure on the economy in the near term."

"TARP and other programs will limit the weakness but the momentum is enough that we are going to see more economic weakness."

"A recession has started since the beginning of year, ignoring what's been stated by the GDP. We've had job losses since the beginning of the year. The question is how much longer does this last and how much deeper does this get?"

SCOTT FULLMAN, DIRECTOR OF DERIVATIVE INVESTMENT STRATEGY AT BROKER-DEALER WJB CAPITAL GROUP IN NEW YORK

"We knew that Citi was in talks with Wachovia. It probably makes sense for them to acquire the operations they are buying, given the backstop of the government. This is just the latest of financial companies to fade off into the sunset. It will be interesting to see how the market digests this in conjunction with the flurry of other news impacting the financial sector this morning."

SEAN MURPHY, BOND TRADER AT RBC CAPITAL MARKETS, NEW YORK:

"The announcement of Citigroup to acquire Wachovia (briefly) reduced the flight to quality bid into Treasuries."

ROSE GRANT, MANAGING DIRECTOR, EASTERN INVESTMENT ADVISORS IN BOSTON

"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."

"With the bailout, some of the things could be passed off to the government, and maybe this won't be as bad as you think."

WILLIAM LARKIN, FIXED INCOME MANAGER AT CABOT MONEY MANAGEMENT IN SALEM, MASS.

"These announcements couldn't have worse timing because they're taking the shine off the potential bailout (in Washington). Fortis, Bradford & Bingley -- that's going to spook people looking at the global markets. They're thinking this thing is spreading."

"Today there will just be more caution."

"It's a positive for Wachovia because it looked really ugly for them this morning. I knew they were on the rocks."

"The biggest banks are getting too big to fail. That's going to be an issue going forward because obviously there's going to be some new, heavy regulation coming down the pipeline."

KEN CRAWFORD, PORTFOLIO MANAGER, ARGENT CAPITAL MANAGEMENT IN ST LOUIS, MISSOURI

"Given their size relative to other large U.S. banks (Citigroup) has a relatively small deposit base."

"I would have thought Wells Fargo would have been a more natural buyer."

"Citi has had a bit of a rough ride lately."

"We have had two of the bigger and more troubled financial institutions taken care of in the last couple of weeks. I guess the good news is that the FDIC is moving the process along to (return stability to) financials."

"If Citi has the financial wherewithal, I think it's probably a good thing for them."

"It will be interesting to see in this reshuffling of the large financials what Wells Fargo does or doesn't do."

(Reporting by Jonathan Spicer, Juan Lagorio, Kristina Cooke, Richard Leong, John Parry and Elinor Comlay in New York, Sitaraman Shankar and Dominic Lau in London and Doris Frankel in Chicago)