The Weekend Waltz

So now the Dance of the Honeybees begins this weekend around who gets Wachovia's honeypot, and who gets to deal with all the stingers.

Wachovia has begun preliminary talks with Citigroup about a potential merger, people briefed on the matter said Friday.

Feelers have also been extended between Wachovia and Wells Fargo and Spain’s Banco Santander, these people said.

These talks are early, however, and no deal may emerge from them, these people said.

Wachovia , the big bank headquartered in Charlotte, has been under increasing pressure in recent weeks amid the turmoil gripping the banking sector. It took additional fire on Friday after JPMorgan Chase acquired virtually all of Washington Mutual, until Thursday evening the nation’s largest savings and loan, in a government-brokered sale.

After hours trading finds Wachovia down to 8.75 or so. I'm fairly sure a deal will be made for it by Sunday night.

On the other hand, National Ciy has been languishing in the $4-6 a share range for four months now, and now it's under $4. Nobody's even bothered with the company. What's killing them is that the company has lost billions in deposits since July, the same scenario that has killed WaMu and IndyMac. Eventually it's going to get to the same point where those banks are: Deposits on hand are going to be too low to operate, and the FDIC will step in and turn out the lights.

The trick is who is going to want to buy a bank in the very economically troubled state of Ohio right now? WaMu at least had branches all over the country. National City is mostly in Ohio, Florida, and Michigan...not a real good place to be a mortgage bank in 2008. They've been in prime buyout position for months now and nobody's cared to even sniff at the corpse.

I smell an FDIC deal, and I smell one soon. Question is who's the buyer? If there's not one found, it's going to be IndyMac all over again, and much worse. Nobody's even bothered to look at picking it up. The FDIC may have to dismantle it.

And that's going to be bad. I was wrong about WaMu (so far) because JPMorgan Chase has solidly offered that it's business as usual, it's a takeover, not a failure. So far the public is buying it. National City will not go nearly that cleanly when it dies.