[BonzoHansen]

Originally Posted by SteveR

On a side note, I'm watching Wachovia closely as they reported over 12 billion in loses last quarter alone.

You are not alone in that watch...

After WaMu Seizure, Wachovia Faces Market's Fears
09/26 11:46 am (ON)
Story 0608 (WB, WM)

By Marshall Eckblad Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- The seizure of Washington Mutual Inc. (WM) is quickly becoming a problem for Wachovia Corp. (WB).

After federal regulators on Thursday night seized the West Coast thrift and its bloated book of failing home loans, investors have trained their focus on Wachovia, which itself holds piles of risky mortgages.

Wachovia shares recently traded down 23% to $10.58, while the cost of insuring Wachovia's debt against default quickly rose to distressed levels.

Wachovia looks to be in substantially better shape than Washington Mutual before WaMu failed. Wachovia has a loyal and largely affluent banking clientele, and a sizable business of offering investment services to clients through financial advisors.

But Wachovia held more than $122 billion in so-called Pick-A-Pay or Option ARM mortgages as of July 22 - an unwieldy type of loan that has fast become notorious for producing high levels of losses, as well as high levels of risk for banks who wrote them.

Pick-A-Pay loans give some borrowers the option of deferring portions of their monthly interest payments, thereby increasing the loan's balance. While Wachovia has stopped writing the loans altogether, Pick-A-Pays have proved highly problematic for both WaMu and Wachovia since home prices have fallen around the nation even as many Pick-A-Pay loan balances have risen.

Defenders of the Option ARM loans maintain that when banks underwrite these loans correctly, they are both safe and lucrative. But as the credit crisis has widened, Pick-A-Pays have produced rising delinquencies and - perhaps more importantly - unnerved investors.

Wachovia ousted its long-time CEO Ken Thompson in July and replaced him with Bob Steel, a former undersecretary at the U.S. Treasury and a veteran Goldman Sachs Group Inc. (GS) banker.

While Steel has worked quickly to reassure investors and has promised to make the Charlotte firm more transparent, Wachovia's shares have continued their wild ride as investors appear unsure what to make of Wachovia's long-term prospects. The shares dropped below $10 in July, and did so again in mid-September, but subsequently rallied both times to crest above $18.