Wachovia sinks as investors weigh its fate

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NEW YORK (CNNMoney.com) -- Wachovia stock lost more than half its value in pre-market trading Monday as investors mulled the fate of the bank, including a potential merger with one of its peers - Citigroup or Wells Fargo.

Wachovia (WB, Fortune 500) shares, which have lost nearly half of their value in the last week alone, plummeted another 58% before the opening bell.

The Charlotte, N.C.-based bank was reportedly in talks to sell itself to either Citigroup (C, Fortune 500) or Wells Fargo (WFC, Fortune 500). By Sunday evening, a bidding war between the two banking giants was underway, several news outlets reported.

Spain's Banco Santander (STD) had also been mentioned as a possible bidder heading into the weekend.

The talks come as concerns have grown about Wachovia's viability, despite a breakthrough reached Sunday by Congressional negotiators on a $700 billion bailout for the financial system.

Sunday's report in The New York Times added that the Federal Reserve and Treasury Department were also participating in the discussions, but that the government was refusing to help bidders by guaranteeing a part of Wachovia's assets the way it did for Bear Stearns in March, when it was sold to JPMorgan Chase (JPM, Fortune 500).

The government was also not ready to take over Wachovia the way it did Washington Mutual (JPM, Fortune 500) last week, the Times reported, unless the bank's financial position deteriorates more rapidly. The Seattle-based WaMu ultimately collapsed and was seized by federal bank regulators before it was subsequently sold to JPMorgan.

Talks were reportedly held as late as Sunday evening, but no deal had been struck by Monday morning.

Speculation that either Citigroup or Wells Fargo may only bid a few dollars a share for Wachovia also helped send Wachovia's stock lower, the Times reported.

Also unclear, the Times said, was whether the banks would bid for all of Wachovia or pieces. Wachovia's retail banking operations would help Citigroup and Wells Fargo expand their branch networks, the Times said.

Spokespeople for Citigroup, Wachovia and Wells Fargo declined to comment on the matter when talk of a possible deal first emerged on Friday.

This wouldn't, however, be the first time that Wachovia has been mentioned eyeing a deal. A little over a week ago, there was rampant speculation that Morgan Stanley and Wachovia were reportedly discussing a merger. A deal between the two firms looks increasingly unlikely, though, after Morgan Stanley (MS, Fortune 500) agreed to sell up to a fifth of itself to Mitsubishi UFJ Financial Group (MUFG), one of Japan's largest banks, earlier this week.

Following a string of high-profile collapses of banks in recent weeks, there has been increasing speculation that Wachovia could be the next one to go.

Wachovia reported losses during the past two quarters due in large part to its exposure to the U.S. mortgage market. Some analysts have cited the company's ill-timed 2006 acquisition of the California mortgage lender Golden West Financial Corp. for its current woes.

A Wachovia representative stressed in a statement on Friday that it has a "strong retail franchise and large and stable deposit base," adding that it was working to strengthen both its capital and liquidity.

Were Wachovia to enter a deal, it would mark yet another big shake-up of the nation's banking industry, which has undergone a dramatic transformation in the past two weeks, including the demise of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America (BAC, Fortune 500) and the failure of Washington Mutual and its subsequent purchase by JPMorgan Chase.