Sep. 30--MORGANTON -- Citigroup agreed Monday to purchase Wachovia's banking operations for $2.1 billion in a deal arranged by federal regulators, making the Charlotte-based bank the latest casualty of the widening global financial crisis.

"Wachovia is so entrenched in North Carolina. The loss of that one bank is going to hurt western North Carolina and North Carolina as a whole," predicted Eddie McGimsey, director of small business and entrepreneurship development at Western Piedmont Community College. "It's hard to imagine the ripple effect of jobs that are going to be lost. And remember the things that Wachovia donated to United Ways and different organizations, even here locally. If that's going away, that's a little scary."

The Bank of Granite, based in North Carolina, isn't immune to what's going on in the financial sector.

The Bank of Granite also has suspended dividend payments and expects to decrease its employee levels by the end of the year, said Scott Anderson, president and CEO of the bank.

The deal with Wachovia greatly expands Citigroup's retail franchise -- giving it a total of more than 4,300 U.S. branches and $600 billion in deposits -- and secures its place among the U.S. banking industry's Big Three, along with Bank of America Corp. and JPMorgan Chase & Co.

But it comes at a cost: Citigroup Inc. said it will slash its quarterly dividend in half to 16 cents. It also will dilute existing shareholders by selling $10 billion in common stock to shore up its capital position.

In addition to assuming $53 billion worth of debt, Citigroup will absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio, with the Federal Deposit Insurance Corp. agreeing to cover any remaining losses. Citigroup also will issue $12 billion in preferred stock and warrants to the FDIC.

The agreement comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia Corp., which was weighed down by losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

Wachovia, like Washington Mutual Inc., which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offered very low introductory payments and let borrowers defer some interest payments until later years. Delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks.

The FDIC asserted Monday that Wachovia did not fail, and that all depositors are protected and there will be no immediate cost to the Deposit Insurance Fund.

Christine Shaw, spokeswoman for Wachovia in Charlotte, said they have not released any information on possible layoffs.

She said it's too soon to tell if there will be any.

The bank has 120,000 employees in its U.S. and worldwide branches.

Anderson said the reason for suspending dividend payments at the Bank of Granite is to try to build money in its capital account so payouts will be better in the future. He likened it to a small business owner not taking a salary for a time in order to invest that money back into the business.

Anderson said the reason the bank is having some issues is due to a lot of credit that was extended to furniture and textile businesses that struggled and kept hanging on. The bank finally had to write off the loans.

He said the problem isn't due to sub-prime mortgage loans because the Bank of Granite didn't get involved in those.