Filed under: Deals, Citigroup Inc. (C), Wachovia Corp (WB), Wells Fargo (WFC), Financial Crisis

As I posted last week, Citigroup (NYSE: C) was in talks to acquire Wachovia (NYSE: WB). Over the weekend, it surfaced that Wells Fargo (NYSE: WFC) was also in on the bidding. This morning, the Federal Deposit Insurance Corporation (FDIC) announced that the “winner” is Citi. But is Citi really winning? I’m not so sure.

Citi will take a $42 billion loss on Wachovia’s $312 billion pool of loans and the FDIC will take on losses beyond that amount in exchange for $12 billion in Citi preferred stock and warrants. The good news for Citi is that it picks up 3,300 branches and offices in 21 states. Wachovia will continue to own A.G. Edwards Inc. and the Evergreen mutual-fund family.

Thanks to Wachovia’s buy of Golden West Financial in 2006, it is the leader in option ARMs, which grant borrowers to skip part of their payment and add the skipped amount to their principal. Fitch estimates that the average option ARM holder will see their payments rise 63% — an additional $1,053 per month.

Now Citi owns the big numbers of mortgages prone to default, so it is unclear how this deal will add to Citi’s earnings, if ever. And who knows how much of the FDIC’s $45 billion reserve fund will be hit with this deal? Wachovia is down 91% in pre-market where Citi slid 3.6%.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He owns Citigroup and Wells Fargo stock and has no financial interest in the other securities mentioned.

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Filed under: Deals, Consumer experience, Competitive strategy, Apple Inc (AAPL), Nokia Corp. (NOK)

It looked like Apple (NASDAQ: AAPL) was going to go out of the business of selling “unlocked” iPhones, which are set up to work on any wireless network. Its new 3G model was going to be sold through about two dozen carriers worldwide. They would be the sole distribution method for the new handset and would make money on the wireless subscription plans marketed with the phones.

It looks like things are not working out that way. According to the AP, “Apple Inc. is putting on sale unlocked iPhone 3G in Hong Kong, allowing people to use it with any mobile phone carrier.” The unit will cost consumers $695.

Apple might be taking a significant misstep. If it alienates its carrier partners by undercutting their capability to make money on the product, over time they could push competing products from companies, including the Samsung Instinct and several products that Nokia (NYSE: NOK), the world largest handset company, will introduce later this year.

Apple is a bit vulnerable now. Its 3G iPhone has run into connection problems in the U.S. That may have made some customers less apt to run into stores to get the new devices. Damaging relationships with its distribution operators by offering unlocked iPhones gives the competition an opening.

Douglas A. McIntyre is an editor at 247wallst.com.

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