Wachovia still in bond talks

Looking to resolve an investigation over the sale of securities that have soured in the credit crunch, Wachovia Corp. remained in discussions today with regulators but both sides said no agreement has been reached.

Missouri Secretary of State Robin Carnahan, who is coordinating the probe with other regulators, has been meeting with Wachovia executives throughout the day, said Carnahan spokeswoman Laura Egerdal. Wachovia spokeswoman Christy Phillips-Brown confirmed the ongoing talks.

A number of big banks, including Citigroup Inc. and Swiss bank UBS, have reached agreements with regulators to buy back billions of dollars of auction-rate securities from investors who haven't been able to access their money because of frozen credit markets. Regulators are investigating whether banks misled customers about the risk of these investments, a type of bond with interest rates that reset periodically, by pitching them as “safe, liquid and cash equivalent.”

News of the talks emerged Monday, and Wachovia later disclosed that it had set aside $500 million toward a possible settlement, increasing its second-quarter loss to $9.1 billion from $8.9 billion. The bank said its customers held $8.7 billion in auction-rate securities as of Aug. 1. In a research report today, Sandler O'Neill + Partners said the bank could be estimating a loss of 5.7 cents per dollar on the securities it would be required to buy back, “although we point out some of the $500 (million) could include anticipated fines payable to regulators.”

Today, Prudential Financial Inc., which is a joint venture partner in Wachvovia's brokerage arm, said it expects to take a pre-tax charge of $125 million in the third-quarter related to Wachovia's posssible auction-rate settlement. Prudential held a 38 percent stake in the venture when it was formed in 2003, but it's ownership has been diluted an undetermined amount since Wachovia's acquisition last year of A.G. Edwards Inc.

Wachovia shares fell 12 percent to $16 on a down day for bank stocks and the broader markets.