Wachovia Corp. shares closed at $10, down $3.70, battered by bond investors' reaction to the Federal Deposit Insurance Corp.'s seizure and sale of Washington Mutual Corp. The stock was down more than $5 until a rumor spread, just before closing, that Wachovia was in merger talks with Citigroup. (See Update below)  
   By selling the company's assets to JPMorgan Chase & Co. for $1.9 billion, FDIC protected itself from WaMu losses, but left little to pay bond investors who had financed the giant retail and mortgage bank's rapid expansion in recent years.
   "They stiffed the bondholders -- 30 cents on the dollar at the holding company level," and next to nothing for other WaMu bonds, said Vanguard Group chief investment officer Gus Sauter, speaking to financial analysts in Philadelphia at an event sponsored by the CFA Society of Philadelphia and moderated by Wilmington Trust economist Adrian Cronje.
  "The first thing that happened this morning: credit-default swaps blew out on Wachovia... Wachovia bondholders are wondering if they're next," Sauter said. Translation: options on Wachovia bonds showed confidence in the securities had collapsed.
  "Wachovia is on the ropes now because their financing costs are going through the roof. It's an absolute reaction against how FDIC sold WaMu," Sauter said.
  Meanwhile, Wachovia CEO Robert K. Steel sent reassuring notes to executives and customers. "We remain optimistic that our leadership in Washington will provide comfort to the markets with a plan to stabilize the housing and short-term funding markets," he wrote. "We intend to remain focused, continue serving customers like no other competitor and utilize our many skills and talents in order to protect the value of our franchise."
  In his letter to Wachovia "Senior Leaders", Steel noted that "the WaMu situation was smoothly resolved for its customers," adding that Wachovia assets are "extremely valuable and continue to operate well." He didn't detail WaMu's impact on Wachovia investors.
  UPDATE: The NY Times' Dealbook, which previously linked Wachovia in merger talks with Morgan Stanley, now says Wachovia is talking to Citigroup. Story here. And/or Wells Fargo, and Banco Santander Central Hispano. Story here. Or is it Goldman Sachs? ICBC?