THE SIXTH-largest US bank, Wachovia, has begun merger talks with potential partners after a 27 per cent drop in its shares on Friday.
Wachovia's suitors may use a template honed by JPMorgan Chase chief executive officer Jamie Dimon last week: wait to see whether regulators will seize the bank, then buy the best assets and let the government sort out the rest, according to analysts.
Citigroup, Wells Fargo and Banco Santander are in talks with Wachovia, the Wall Street Journal reported on Saturday. They are part of the same group that passed on a chance to buy Washington Mutual, a deal which US regulators closed two days ago, leaving JPMorgan to buy WaMu for $1.9 billion, a fraction of its previous offer in March.
The bidders may try that tactic at Wachovia following its 27 per cent plunge in trading on Friday, according to analysts at Goldman Sachs and Egan-Jones Ratings.
They may get help from regulators, who said the US benefited from seizing and selling WaMu because the Federal Deposit Insurance Corporation (FDIC) didn't have to tap its $45 billion insurance fund. "WaMu's takeover has proven that there's an easy way, if the FDIC is involved," said Sean Egan, president of Egan-Jones.
"You kick the hell out of the equity-holders and bond-holders. That may be the new model for bank takeovers."
Wachovia has more resources to draw upon than WaMu did, including its market capitalisation of $21.6 billion. Chief executive Robert Steel (57), the former Treasury official hired this summer, told employees in an e-mail on Friday that Wachovia was "strong and performing well." - (Bloomberg)
