Prediction Market Gamblers Lose on Wachovia Bet

In the end, over 75 percent of the betting action was going Wachovia's way to fail by December 31, 2008 at online prediction market intrade.com. And in the end, that bet was considered a "loss".

Unlike Washington Mutual, which was taken over by Federal authorities last week and quickly purchased by JPMorgan Chase, the FDIC noted that Wachovia did not qualify as a failed bank.

Citigroup will acquire the banking operations of Wachovia for $2.2 billion in an all-stock deal announced Monday, following much speculation over the weekend about the fate of the nation's fourth-largest bank. The deal was worked out prior to any government intervention.

As part of the deal, Citigroup will acquire Wachovia's massive deposit network, giving it more than $600 billion in deposits in the U.S., about a 9.8 percent market share, and broadening its presence in such key regions as the Southeast and the West.

At the same time, Citi will assume about $53 billion in the Wachovia's debt and take hold of the same loan portfolio that ultimately sank Wachovia in the end.

Some top federal officials, including Treasury Secretary Henry Paulson, had feared that had a deal for Wachovia not been reached, it could have resulted in further fallout for both the economy and the already fragile financial system.

"A failure of Wachovia would have posed a systemic risk," Paulson said in a statement.

Harleysville National and National City were two of the most likely bank failures based on prediction market wagering at intrade.com on Monday.

Harleysville is based out of Pennsylvania. National City is based in Cleveland, Ohio.

The later bank's shares plunged late Monday following a tumultuous day on Wall Street. The stock market witnessed its worst single day drop ever after the House failed to pass a much ballyhooed "financial bailout" package.

National City, to be sure, has had its share of problems, too, according to Fortune Magazine. But the bank stresses that there is no reason for investors or depositors to fear for its safety. It has much less exposure to aggressive mortgages and rapidly deflating housing markets in California and Florida, for instance, than WaMu and Wachovia.

"We believe recent performance of our stock reflects the extreme volatility in the financial services market," spokeswoman Kelly Wagner Amen says.