- The Washington Times - Saturday, September 27, 2008

NEW YORK | Although Wachovia Corp. has been mentioned as one of the more troubled big U.S. banks, at least some analysts believe it is not at risk and is unlikely to suffer the same fate of Washington Mutual Inc.

Still, Wachovia shares plunged Friday as investors, the day after WaMu’s failure, shifted their focus to other financial institutions that also struggle under the weight of mounting losses tied to toxic assets.

Wachovia shares fell $3.70, or 27 percent, to $10 on Friday as the Charlotte, N.C., bank reportedly entered into preliminary talks with a handful of possible buyers. Potential buyers include Wells Fargo, Banco Santander and Citigroup, the Wall Street Journal reported on its Web site.

On Thursday, the troubled Seattle-based WaMu collapsed under mounting losses tied to 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 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.

“The fundamentals at Wachovia right now are not real strong, there is no question about that,” said Joe Keetle, senior wealth manager at Dawson Wealth Management, who previously spent 25 years at Wachovia. “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.”

Essentially, the feeling on Wall Street is that Wachovia is hurting, but it’s not in the same dire straits as WaMu had been before it was seized by the FDIC. The company has been mentioned as a possible merger partner for Morgan Stanley.

The bank may need to raise additional capital or speed up its turnaround plans in some way to soothe investors in the short-term, analysts said.

A Wachovia representative was not immediately available for comment.

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