WASHINGTON - US authorities said Monday they had facilitated a takeover of Wachovia's banking operations by Citigroup Inc. in a deal that gives the government a stake in one of the nation's biggest banks.

The Federal Deposit Insurance Corp. made the announcement that further reshapes the troubled US banking sector saddled with heavy losses from the bursting of the real estate bubble.

"Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC," the government agency said.

The government will get a stake in Citigroup in exchange for guaranteeing a large portion of the distressed Wachovia assets linked to housing.

Citi will assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia; the FDIC will absorb losses beyond that and take a stake in Citigroup for the guarantee.

Citigroup has granted the FDIC 12 billion dollars in preferred stock and warrants to compensate the FDIC for bearing this risk, according to an FDIC statement.

The US government's engineered bailout of Wachovia, a major US bank hammered by mortgage-related losses, was taken in agreement with Federal Reserve and Treasury Secretary Henry Paulson, in consultation with President George W. Bush, according to the statement.

"In consultation with the president, the secretary of the Treasury on the recommendation of the Federal Reserve and FDIC determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability," the FDIC said.

The bank regulator and insurer highlighted that all Wachovia depositors are "fully protected" under the FDIC guarantee of individual bank deposits up to 100,000 dollars.

The transaction was expected "to be no cost to the Deposit Insurance Fund," it said.

Under the agreement, Citigroup will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia, based in Charlotte, North Carolina.

Wachovia will continue to own AG Edwards and Evergreen, the FDIC said.

"For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits," FDIC chairwoman Sheila Bair said in the statement.

"There will be no interruption in services and bank customers should expect business as usual."