Ahead of the Bell: Wachovia reportedly in talks

The Wall Street Journal reported that Wells Fargo appeared to be the preferred bidder, citing unnamed sources close to the situation, and also listed Spain's Banco Santander SA as a possible suitor.

Robert W. Baird analyst David George said he thinks Wells Fargo has a relative advantage in the event a bidding war develops, given its premium multiple, and noted that despite Wachovia's headline-grabbing exposure to option adjustable rate mortgages (ARMs), it is "one of the more attractive deposit franchises in the country" with good longer-term earnings power.

Wachovia spokeswoman Christy Phillips-Brown declined to comment on the reports late Sunday, as did Citigroup spokeswoman Christina Pretto. Banco Santander also declined to comment early Monday and Wells Fargo spokesmen could not be immediately reached for comment.

The sale of Wachovia could come just days after the government's seizure of Seattle-based Washington Mutual Inc.--the largest bank failure in U.S. history. JPMorgan Chase & Co. scooped up the thrift's deposits and assets for $1.9 billion in an emergency sale.

Wachovia has been among the banks hardest hit by the ongoing crisis in the mortgage market. Its 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.

But like many other banks, Wachovia stands to benefit from passage of the government's proposed $700 billion rescue plan. Lawmakers are to vote on the bailout package on Monday.

Wachovia's shares fell 27 percent to close Friday at $10. The stock is down 74 percent for the year.

In Monday premarket electronic trading, shares traded at $3.83.