Citigroup Inc. is acquiring the banking operations of Wachovia Corp. in a deal backstopped by the government, just days after the government's seizure of Seattle-based Washington Mutual Inc., the largest bank failure in U.S. history.

The Federal Deposit Insurance Corp. made the Wachovia announcement Monday morning as Wachovia became the latest institution to succumb to anxiety over mounting losses tied to toxic assets.

The FDIC said Wachovia didn't fail, adding that all depositors are protected.

Under the agreement announced Monday, Citigroup will absorb up to $42 billion US of losses on a $312-billion pool of loans. The FDIC will take on losses beyond that.

Citigroup has granted the FDIC $12 billion in preferred stock and warrants in compensation for this risk.

Wachovia's problems originate in its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the U.S. housing boom.

With that purchase, Wachovia inherited a deteriorating $122-billion portfolio of loans that allow borrowers to skip some payments.

During the summer, Wachovia reported a $9.11-billion quarterly loss, announced 11,350 job cuts and slashed its dividend.