Is Wachovia Next?

Now Wachovia is wobbling.

The seizure of Washington Mutual Inc. (WM) is quickly becoming a problem for Wachovia Corp. After federal regulators on Thursday night seized the West Coast thrift and its bloated book of failing home loans, investors have trained their focus on Wachovia, which itself holds piles of risky mortgages.

Wachovia shares recently traded down 23% to $10.58, while the cost of insuring Wachovia's debt against default quickly rose to distressed levels. Wachovia looks to be in substantially better shape than Washington Mutual before WaMu failed. Wachovia has a loyal and largely affluent banking clientele, and a sizable business of offering investment services to clients through financial advisors.

But Wachovia held more than $122 billion in so-called Pick-A-Pay or Option ARM mortgages as of July 22 - an unwieldy type of loan that has fast become notorious for producing high levels of losses, as well as high levels of risk for banks who wrote them.