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In the latest move to reshape the U.S. banking landscape, Citigroup Monday agreed to acquire Wachovia’s banking system for $2.1 billion in a deal brokered by federal  regulators.

Under the deal, Citigroup will assume $53 billion in debt of Wachovia, whose exposure to mortgage-backed securities had forced the company to put itself on the block.

In morning trading, shares of Citigroup climbed $.10, or .5 percent, to $20.25, while opening trading in Wachovia stock was delayed. In pre-market activity, Wachovia was down $9.06, or 90.6 percent, to $.94.

Citigroup, which itself has struggled with exposure to mortgage-related debt, beat out rival Wells Fargo in striking a deal for Wachovia. Not included in the deal were the AG Edwards brokerage and Evergreen asset management units, which will continue to be run by the reshaped Wachovia Corp.

In connection with the deal, Citigroup, which gains more than $700 billion in fresh Wachovia deposits, plans to raise $10 billion in common equity  and cut its quarterly dividend to $.16 per share.

The latest deal comes a week after the Federal Deposit Insurance Corporation brokered JP Morgan Chase’s acquisition of struggling thrift Washington Mutual for $1.9 billion. In the Wachovia deal, Citigroup agreed to absorb losses up to $42 billion on a $312 billion pool of Wachovia loans with the FDIC taking any remaining losses. In exchange, Citigroup granted FDIC $12 billion in preferred stock and warrants.

In a statement, Citigroup Chief Executive Vikram Pandit said the deal, which must be approved by Wachovia shareholders, would make Citi the No. 1 U.S. bank with more than $600 billion in domestic deposits—a 9.8 percent market share--and $1.3 trillion in deposits worldwide.

Citigroup said the deal is expected to have a positive impact on Citi's earnings in the first year excluding $3.7 billion in pre-tax restructuring charges for severance over the next four years.