Wachovia feels heat of investors' concerns

Still, investor anxiety about the future of the Charlotte, N.C.-based bank remained high Friday, the day after WaMu's failure, as Wall Street shifted its focus to other financial institutions that also suffer under the weight of mounting losses tied to toxic assets.

Adding fuel to the fire, media reports surfaced Friday afternoon that Wachovia had begun preliminary talks with potential suitors, including Citigroup Inc., Wells Fargo & Co. and Banco Santander. Citigroup, Wells Fargo and Wachovia all declined to comment on the speculation. A representative of Banco Santander was not immediately reached.

Wachovia shares plunged $3.70, or 27 percent, to close at $10, after falling as low as $8.02 earlier in the session. Shares are down 74 percent this year.

On Thursday, the troubled Seattle-based Washington Mutual collapsed under the weight of hefty losses from bad mortgage bets. The Federal Deposit Insurance Corp. was forced to seize and sell its banking assets to JPMorgan Chase & Co. for $1.9 billion in an emergency sale. WaMu, the nation's largest thrift, became the nation's largest-ever bank failure.

"Wachovia is obviously trading down in sympathy," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners, in a telephone interview. "Investors are looking for who else out there has a large exposure to mortgage assets that potentially could be written down to a significant degree."

Wachovia's current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation's housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West's specialty, which let borrowers skip some payments.

"They made a mistake when they bought Golden West Financial, and they are paying for that now," said Joe Keetle, senior wealth manager at Dawson Wealth Management, who previously spent 25 years at Wachovia. "The fundamentals at Wachovia right now are not real strong, there is no question about that. But the reaction today has more to do with WaMu going under and waiting for Congress to pass a bill. It's more emotional reaction today."

Like many other banks, Wachovia stands to benefit from the passage of the government's proposed $700 billion rescue plan--the details of which are still being hashed out by lawmakers.

"Wachovia needs Congress to pass this bill pretty quickly," said Ben Halliburton, chief investment officer at Tradition Capital Management. "The plan would be a big benefit for somebody like Wachovia."