WaMu's Gone, but Trouble Spots Remain

The Charlotte-based bank has substantial liquidity, but it has been engulfed by mortgage problems this year following its 2006 acquisition of California residential real estate lender Golden West, as loans once thought to be relatively good quality have soured. Golden West was known for its option adjustable-rate mortgage product, but as home prices plummeted, Wachovia has been hamstrung by its $122 billion option ARM portfolio.

Hepner is less concerned about one other firm that has had a rocky few months -- Citigroup (C Quote).

"Citi plans get back to basics that will be long-term income streams for them and really divest themselves of less attractive assets," he says. "I think they have got good management at the top now. They will survive whether there is a package or not." Ruggie own shares of Wells Fargo (WFC Quote) and SunTrust (STI Quote), among other firms, but not Wachovia or Citi.

(Late Friday, The New York Times reported that Citi and Wachovia are in preliminary talks about a merger.)

Late Thursday, Washington Mutual's banking operations were sold to JPMorgan Chase (JPM Quote) after federal regulators seized the nation's largest thrift.

JPMorgan Chase agreed to pay the Federal Deposit Insurance Corp. $1.9 billion for WaMu's deposits, assets and other liabilities.

In addition, the New York-based banking titan, which also bought Bear Stearns in June, will take writedowns of $31 billion against WaMu's $242 billion average loan portfolio. The writedown "primarily represents our estimate of remaining credit losses related to the impaired loans," the bank said.