Banking on Wachovia As a Bailout Trade

By Mike Havrilla

My favorite pick for a quick trade on the massive Fed bad debt bailout plan is Wachovia (WB) as the stock has traded with extreme volatility over the past three months (click to enlarge chart, above), and could easily double from my purchase price on Friday of $10 per share, once legislators come to an agreement.

If you believe legislators will reach an agreement soon on a bailout, this is a good trade as it will allow Wachovia to jettison bad mortgage debts associated with its Golden West purchase. Also, Wachovia was one of the biggest gainers a week ago during the Thursday intraday market meltdown through the following two-day relief rally.

Comments

[RebelTrade:]

You have the wrong idea. The stock is doomed and the only trade is to buy calls and sell puts.

2008 Sep 28 05:35 AM

[Mike Havrilla:]

You could have traded WB at least two times intraday on Friday for 10-15% gains with buys at the open around $10 and then a buy below $9 later in the day as the stock spiked from lows around $8.50 to close at $10 as CNBC reported merger talks with Citi. I agree WB is only a trading vehicle, but it is a good one with huge volumes and volatility with a chance to make money on either side of the trade.

2008 Sep 28 09:44 AM

[ROCKY HUFFMAN:]

I hope Mike Havrilla is correct. I purchased an extremely large position in Wachovia at 2:45 Friday afternoon. Odds are after the announcement of a deal in principal this morning and the vote scheduled for the House tomorrow and perhaps the Senate later in the day or Tuesday I believe a strong openining is more than likely. It will initally be fueled by the people holding the many puts purchased during the day on Friday. It closed at $10.00 but traded down in the mid $8 range after hours on a insignifcant volume.

2008 Sep 28 11:03 AM

[Mike Havrilla:]

CNBC is reporting advanced merger talks between Citi and Wachovia:
mikehav.blogspot.com/2...

2008 Sep 28 11:07 AM

[Old Coach:]

Not so fast. The bailout bill has a provision where Cox can suspend mark to market accounting rules (See below). And also commissions a study on its effects. If that rule gets suspended, look for the 3-year rolling average to come out of the study as the long-term solution. Newt Gingrich and others have been pushing Congress to consider it. Take out M to M and sell the bad debts to Uncle Sam and WB starts looking really good for the long haul or to command a much higher price as a takeover.

SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET AC-
COUNTING.
(a) AUTHORITY.—The Securities and Exchange Com-
mission shall have the authority under the securities laws
(as such term is defined in section 3(a)(47) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to sus-
pend, by rule, regulation, or order, the application of
Statement Number 157 of the Financial Accounting
Standards Board for any issuer (as such term is defined
in section 3(a)(8) of such Act) or with respect to any class
or category of transaction if the Commission determines
that is necessary or appropriate in the public interest and
is consistent with the protection of investors.


SEC. 133. STUDY ON MARK-TO-MARKET ACCOUNTING.
(a) STUDY.—The Securities and Exchange Commis-
sion, in consultation with the Board and the Secretary,
shall conduct a study on mark-to-market accounting
standards as provided in Statement Number 157 of the
Financial Accounting Standards Board, as such standards
are applicable to financial institutions, including deposi-
tory institutions. Such a study shall consider at a min-
imum—
(1) the effects of such accounting standards on
a financial institution’s balance sheet;
(2) the impacts of such accounting on bank fail-
ures in 2008;
(3) the impact of such standards on the quality
of financial information available to investors;
(4) the process used by the Financial Account-
ing Standards Board in developing accounting
standards;
(5) the advisability and feasibility of modifica-
tions to such standards; and
(6) alternative accounting standards to those
provided in such Statement Number 157.
(b) REPORT.—The Securities and Exchange Commis-
sion shall submit to Congress a report of such study before
the end of the 90-day period beginning on the date of the
enactment of this Act containing the findings and deter-
minations of the Commission, including such administra-
tive and legislative recommendations as the Commission
determines appropriate.

2008 Sep 28 08:07 PM

[sad and sorry:]

That was my opinion too. I bought alot on Thursday ay 14 and Friday at 9.9. Unfortunately, WB may be sold in the next few hours for something like $3/share. Read the NY times article issued at 11:30EST. Looks like we screwwed up!

2008 Sep 29 01:44 AM

[Gerry Sullivan:]

Wachovia common stock is probably toast. On friday several issues of Wachovia debt were offered at 35 to 50 cents on the dollar. With the Wamu debt having been wiped out in the Chase deal this debt was very risky.

I tried (and failed) to buy the Aa3 rated 1st Union Nat Bank Charlotte debt. Now I wish I had been more aggresive in my attempt as I think it will become Citi or Wells Fargo debt.

2008 Sep 29 08:18 AM