Citigroup will absorb up to $42 billion of losses in the deal, with the FDIC covering any remaining losses, the government agency said Monday. Citigroup also will grant the FDIC $12 billion in preferred stock and warrants.

The FDIC asserted that Wachovia didn’t fail, and that all depositors are protected and there will be no cost to the Deposit Insurance Fund.

Federal Reserve Chairman Ben Bernanke, in a statement Monday, said he supports the “timely actions” taken by the FDIC “which demonstrate our government’s unwavering commitment to financial and economic stability.”

Wachovia has been one of the U.S. banks most affected by the mortgage meltdown which has been gripping the financial sector.

The main reason Wells Fargo has the edge is because the company has so far managed to miss most of the excitement of the credit crunch, which has caused the failure of 11 banks so far this year nationwide.

Wachovia (NYSE:WB) runs a huge branch network in the Eastern section of the United States, a prize coveted by either Citi or WFC.

So far the government in the guise of the Fed has been reluctant to involve itself in the Wachovia deal.

Wachovia stock has traded as high as $52.25, and ended the day at $10 on Friday.

Robert Steel brings heavyweight experience to bear at Wachovia. Steel was the Under Secretary for Domestic Finance for the U.S. Department of Treasury. He also had an extensive career at Goldman Sachs & Co. (NYSE: GS).

Steel is considered to be a central figure in the JPM (NYSE:JPM) “bailout” of Bear Stearns.

“Bob is a distinguished and widely respected leader in the financial-services sector whose vast experience and deep knowledge make him the ideal candidate to lead Wachovia,” said Lanty Smith, who has been serving as the company’s interim CEO. “The board is unanimous in its decision that Bob is the right person to provide sound leadership to build on Wachovia’s core strengths and successfully manage the company through the current environment as a strong and independent company.”

Steel is happy with new opportunity, according to a statement he made on the subject.

“I am honored to have the opportunity to lead Wachovia, one of the nation’s premier retail, brokerage, asset-management and investment-banking franchises. Clearly, there are challenges ahead in our current climate, but I am encouraged that most areas of the company continue to perform well, and this performance is a testament to the quality of Wachovia’s employees and the longstanding excellence of service to customers and clients.”

“In Wachovia, I see an institution with great strengths. Under the leadership of the board, the management team has recently been taking decisive actions to face current challenges head on, and I am delighted to have an opportunity to build on that progress. I look forward to working with a talented team companywide to restore value to Wachovia’s shareholders, promote transparency and continue delivering outstanding service to Wachovia’s customers,” said Steel.

Recently deposed Wachovia CEO, Ken Thompson.

Lanty Smith said that the search for a new Chief Executive Officer is on and that the company didn’t need to raise cash. He said that Wachovia was “absolutely not” in crisis and that it needed new leadership to revitalize their core business.

This announcement is on the heels of revising a $708 million dollar loss for the first quarter of 2008 and raising $7 billion dollars of new capital.

Wachovia (WB) is currently trading between $22.00 – $23.00 a share.