Wachovia, Citi in Merger Talks: Reports

Updated from 5:07 p.m. EDT

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Wachovia (WB) has reportedly engaged in discussions with Citigroup (C) about a possible tie-up between the two, according to The New York Times, which cited sources familiar with the matter Friday.

However, the talks are in very early stages, and no deal may come from the discussions, these people told the newspaper.

The Wall Street Journal named even more potential merger partners for Wachovia, in addition to Citi, reporting that it's also holding talks with Banco Santander (STD) and Wells Fargo (WFC).

Amid worries about its financial health, Wachovia saw its shares plunge nearly 40% during the trading session following the failure of Washington Mutual (WM) and the subsequent sale of its banking operations to JPMorgan Chase (JPM) late Thursday.

Wachovia was reportedly in discussions last week with Morgan Stanley (MS) about a possible merger. Those talks apparently ended earlier this week after Morgan changed its status to a bank holding company and said that Mitsubishi UFJ (MTU) agreed to take a 20% stake in the firm.

For months, Wachovia has been dealing with a host of mortgage problems that followed its 2006 acquisition of California residential real estate lender Golden West.

Citi has taken its own massive losses as a result of the housing and credit crisis. The New York based bank was reportedly among the list of suitors considering an acquisition of WaMu.

Spokesmen from both companies declined to comment regarding rumors or speculation, they said.

After the report was published, Wachovia was down nearly 13% in late trading. Citi was up 2.2%.