Citigroup (C) And Wells Fargo (WFC) Find A Cowpie On Wachovia's (WB) Books

The most wonderful thing about the current financial crisis is that it is a monument to human optimism. Every day executives and government officials signal that things may be getting better. Everyday they get worse.

There is no better example of this than the land-grab that is going on between Citigroup (C) and Wells Fargo (WFC) to get the retail system and other assets of Wachovia (WB). As it turns out, after a close look, the Wachovia balance sheet is uglier than expected.

According to The Wall Street Journal, "After burrowing deeper into Wachovia’s books, Citigroup and Wells Fargo have been surprised by the concentration of assets they regard as low-quality." Low-quality is a euphemism for worthless.

The two potential buyers are also fighting over who gets the Wachovia computer systems like they were playing poker in a hurricane.

Now that everyone knows how badly off Wachovia is, the deal could go one of two ways. The suitors could let the banks fail. The FDIC would pick up the pieces. Citi and Wells Fargo would probably bid for the few gems which are left.

The other alternative is that one of the banks who wants Wachovia gets a nice big government safety net covering losses from the bank’s portfolio, thereby reducing the risks for a buyer.

Either way, the FDIC will be left holding the check.

Douglas A. McIntyre