October 3, 2008 – 5:52 am

Citigroup and Wachovia got to the part of the wedding where the preacher says “anyone but reason why these two should not be married let them speak now or forever hold his peace.” Then, just like Dustin Hoffman in The Graduate, Wells Fargo started pounding on the balcony glass. There will be more on this, I promise, but this is what we know from The New York Times so far:

Wells Fargo said early Friday that it would merge with Wachovia — including the troubled Charlotte bank’s banking operations — in a $15.1 billion all-stock merger.

The announcement comes only four days after Citigroup agreed to buy Wachovia’s banking operations for about $1 a share, at the government’s behest and with a guarantee to absorb most of the losses on Wachovia’s massive loan portfolio. That deal, which Wachovia now appears to be spurning, would have left the Charlotte bank with only its securities and retail brokerage businesses.

Wells Fargo, based in San Francisco and considered one of the strongest banks amid the market turmoil, said that the deal requires no assistance from the Federal Deposit Insurance Corporation or any other government agency. It will raise up to $20 billion by issuing new shares, primarily common stock.

Who considers Wells Fargo one of the strongest banks? This is where we are; this is what we have come to. “Requires no assistance from the Federal Deposit Insurance Corporation or any other government agency…” Sure, Wells Fargo can raise up to $20 billion by issuing new shares of common stock? But can the bank earn a penny?

“This agreement is an outstanding opportunity for Wachovia common and preferred shareholders and debt holders, team members and customers, for the Charlotte and St. Louis communities and indeed all of the communities that Wachovia serves, and for the U.S. government and our banking system,” Richard Kovacevich, Wells Fargo’s chairman, said in a statement.

This agreement is an outstanding opportunity for Citigroup to bail out of its shotgun marriage. It is a break for the Wachovia shareholders too, who got only one dollar per share under the Citi deal.

The big question about Wachovia has been its loan portfolio, which has been saddled with billions of dollars in troublesome adjustable-rate mortgages it acquired from its merger with Golden West Financial in 2006.

There is no question about its loan portfolio. It stinks. The loans which have begun crumbling will not magically stop crumbling. They may as well write off at least 90% of the Golden West junk they are now bringing onto their balance sheet.

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