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Wachovia Looks for Buyers of Troubled Assets

Like WaMu, Wachovia's exposure to subprime mortgages weakens its position

By Mark Huffman
ConsumerAffairs.com

September 26, 2008

The Wall Street Journal late Friday quoted an unnamed source as saying Wachovia is listening to proposals from Banco Santander SA, Wells Fargo & Co. and Citigroup Inc.

Wall Street analysts consider the bank to be in danger of default because of its exposure to the mortgage market and related losses.

Even so, it's not considered to be in the precarious condition that Washington Mutual found itself in over the last two weeks.

Washington Mutual was in the process of being closed by federal regulators Thursday when JPMorgan Chase swooped in and bought its assets for $1.9 billion.

WaMu had assets of just over $300 billion when it went under, making it the nation's largest bank failure. Wachovia, should it not survive, would top that, as the company last reported more than $812 billion in assets.

Saving itself?

Should Wachovia be bought before it can fail, it would also be another example of how Wall Street appears to be "saving" itself.

Instead of waiting for Congress to work out a government rescue plan, banks with strong balance sheets are showing strong interest in picking off those that are in trouble.

Wachovia is among a number of large regional banks struggling under the weight of unmarketable mortgage securities. Since 2001 Wachovia has acquired five banks or financial services firms. Some of those firms, notably Golden West, were aggressive in the subprime lending market.

Under the plan currently being debated in Congress, the federal government would be authorized to purchase those unmarketable assets from Wachovia and other troubled banks.

If the government could obtain them for an attractive price, it would be in a position to sell them at a profit for the taxpayers — literally the old "buy low, sell high" philosophy.

While the Congress debates, stronger banks appear to want in on the deal, especially if they can pick up bank assets at fire sale prices. It could well be that by the time Congress finally works out a plan to rescue the banks, the job will have already been done.

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