In an odd twist, the Federal Deposit Insurance Corp. announced today that Citigroup Inc. will purchase the banking operations of Wachovia Corp.

Citi will pay $2.2 billion to take over Wachovia while also assuming the first $42 billion of losses on the Charlotte, N.C.-based bank’s $312 billion loan portfolio. The FDIC will assume the remaining losses in exchange for $12 billion in preferred stock and warrants.

Wachovia had $796.4 billion of assets at the end of the second quarter of 2008, up from $783.6 in the first quarter of 2008. The bank had a net loss of $8.8 billion last quarter, mainly as a result of troubled assets in its portfolio. For example, of the $4.2 billion of higher loan-loss reserves the bank set aside last quarter, $3.3 billion were for its so-called Pick-a-Pay residential mortgages, which were akin to option ARMs. The bank still had $122.2 billion of Pick-a-Pays in its portfolio at the end of last quarter.

It was unclear whether the FDIC had ever entered into such an arrangement in the past. The regulator did not return a request for comment.

Wells Fargo & Co. and Banco Santander had also been in the hunt for Wachovia, one of the nation’s largest financial institutions.

Citi has been on the sidelines as rivals Bank of America Corp. and JPMorgan Chase & Co. have made large acquisitions as the credit crisis has reached a climax.