Wachovia and Morgan Stanley hold talks

CHARLOTTE, N.C., Sept. 18 (UPI) -- North Carolina's Wachovia Corp. had preliminary acquisition talks with Morgan Stanley as fears mount that another major bank may collapse, sources said.

Lehman Brothers Holdings Inc. filed for bankruptcy Monday. Merrill Lynch collapsed into the arms of rescuer Bank of America and Britain's HBOS, was purchased by Lloyds TSB Wednesday.

Washington Mutual shareholders positioned that bank for a sale, forfeiting a penalty that would have kicked in had Washington Mutual accepted any purchase offers.

The banking industry's version of musical chairs includes a dash among weaker banks to pair up with a stronger partner to ensure they can find a seat.

A large share of Wachovia's losses come from the purchase of California's Golden West Financial Corp. just before the subprime mortgage crisis began.

But "I'm much more worried about Washington Mutual than about Wachovia," Ed Kane, a professor of finance at Boston University told The Philadelphia Inquirer.

"Wachovia at least has a lot more diversification than Washington Mutual. Wachovia is

a bank that acquired a thrift, and Washington Mutual is mostly home loans," he said.