Toll rises: Another US bank looking for buyers

Written by Agencies | New York, London, Sep 27 | Updated: Sep 28 2008, 07:45am hrs
The current financial turbulence in the US took yet another toll with Americas sixth largest bank, Wachovia, starting preliminary talks with potential buyers including Citigroup, Wells Fargo and Spains Banco Santander. Also, Washington Mutual, the 119-year old banking institution, has on Friday filed for bankruptcy after sale of its banking unit to JPMorgan on Thursday.

Media reports in the US about Wachovias possible sell-offa day after the collapse of Washington Mutual, the biggest bank failure of US historyhas added fuel to the fire with US stocks dropping most in four months even as Congress debate over the $700 billion bailout package to save financial institution in the country.

Wachovia has assimilated distressed assets worth $122 billion on account of its exposure in the housing mortgage. The banks problems stem largely from its acquisition of mortgage lender Golden West Financial Corp in 2006 for roughly $25 billion at the height of the nations housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of pick-a-payment loans, Golden Wests specialty, which let borrowers skip some payments. Wachovia, according to its website, has assets of over $800 billion and its brokerage operations manage $1.1 trillion of client assets.

Wachovia approached potential buyers, including Citigroup, Wells Fargo and Spains Banco Santander, on Friday after a 27% plunge in its shares deepened fears over the future of the sixth-largest US bank, UK daily Financial Times reported.

After assessing the fallout situation of its shares, Wachovia executives led by its CEO Robert Steel contacted Citi, Wells and Santander, the report said.

Wachovia shares are down 74% this year. These three financial majorsCiti, Wells and Santander- were also interested to buy Washington Mutual Inc but ultimately JP Morgan acquired most of the WaMu.

However, US financial daily Wall Street Journal reported that, Wachovia officials dont believe they need to rush into a deal, and the bank isnt feeling immediate pressure on its financial condition, quoting people familiar with the company. Interestingly, analysts in the US say Wachovia Corps suitors may use a template honed by JPMorgan Chase & Co CEO Jamie Dimon last weekwait to see whether regulators will seize the bank, then buy the best assets and let the government sort out the rest.

However, Christina Pretto, a spokeswoman for Citigroup, declined to comment on Wachovia takeover, as did Santanders Peter Greiff, spokesman for the Spanish bank, and Wells Fargos Julia Tunis Bernard in San Francisco. Wachovias Christy Phillips Brown didnt comment as well.

The financial crisis in the US also deepened further with Washington Mutual deciding to file for bankruptcy protection after selling its banking operations to JPMorgan recently. Washington Mutual, which has an asset of over $300 billion, will be the second major financial entity after Lehman Brothers to file for bankruptcy protection.

Meanwhile, US stocks retreated, driving the Standard & Poors 500 Index to its steepest weekly slump since May, as Congress failed to approve a $700 billion bank bailout.

Washington Mutual Inc dipped 96% after it was seized by regulators. The S&P 500 dropped 3.4% to 1,213.01. The Dow Jones Industrial Average fell 2.2% to 11,143.13. The Russell 2000 Index lost 6.5%, the most since January, to a two-month low of 704.79.