Wachovia and Citi in Merger Talks

The NY Times is reporting that Wachovia and Citi are in merger talks. Wachovia needs a buyer. It's stock is getting crushed, down 3.70, or 27% to 10. It's down another 12% in after-hours trading. The bank is suffering from a bundle of bad mortgage loans it inherited as part of the Golden West acquisition. It's estimated that Wachovia holds $120 billion in adjustable rate mortgages, which allow holders to skip payments and add the debt to their principal.

The bank has been aggressivily trying to attract deposits as shown by its competitive savings and cd rates. Wachovia is currently offering a 3.5% APY money market account and a 4.25% APY 1 year CD. These are competitive money market rates and cd rates as shown by the BestCashCow rate tables and are unusual for a large bank.

The big question is whether Citi or any other bank will buy now or wait. If they wait, they risk Wachovia recovering or benefiting from any legislation that is passed over the next couple of days. But if they wait, they might be able to get Wachovia's assets for far less. The new trend is to let a bank fail and then let swoop in to buy it at rock bottom prices. That's what JP Morgan did with WaMu.

My guess is that Wachovia is in trouble and won't survive without either a buy-out or bailout legislation.