The main reason Wells Fargo has the edge is because the company has so far managed to miss most of the excitement of the credit crunch, which has caused the failure of 11 banks so far this year nationwide.

Wachovia (NYSE:WB) runs a huge branch network in the Eastern section of the United States, a prize coveted by either Citi or WFC.

So far the government in the guise of the Fed has been reluctant to involve itself in the Wachovia deal.

Wachovia stock has traded as high as $52.25, and ended the day at $10 on Friday.

The first whiff of Wells Fargo’s home equity woes surfaced last month when the bank reported it lost $153 million on the portfolio in the third quarter, up from $27 million at the same last year.

Wells Fargo’s chief executive, John Stumpf, spooked investors even further two weeks ago when he described the current real estate slump as the worst since the Great Depression and reiterated earlier projections that the bank’s home equity losses would continue to rise next year.

Given that so many other banks had disclosed plans to write off huge losses in the fourth quarter, Wells Fargo might have decided it was an opportune time to clean its financial house too, Morford said.

Of course, the news could have been worse. The losses are still much less than those experienced by fellow lenders. The company expects more write-offs as the months progress and the mortgage crisis deepens.