Wachovia, America's fourth biggest retail bank, was in advanced discussions on Sunday night to sell itself to Wells Fargo.

Wachovia was understood also to be holding talks with Citigroup but, by late evening Wells Fargo, the US retail bank, appeared to be the preferred bidder. Wells Fargo became favourite after Santander, another bidder, bought £20 billion worth of savings from Bradford & Bingley.

The bank was forced to accelerate its hunt for a rescue bidder after JPMorgan Chase, the new owner of Washington Mutual, gave warning at the end of last week that it would have to write off large chunks of the rival retail bank's mortgage book. Wachovia and Washington Mutual share similar lending practices.

The takeover of Wachovia would mark the fourth bank in just over a fortnight to either collapse or change hands because of its weakening position. Two weeks ago, Lehman Brothers, the investment bank, collapsed. During the same weekend, Merrill Lynch agreed to be sold to Bank of America, and last week, Washington Mutual, the mortgage lender, was seized by regulators and later acquired by JPMorgan Chase.

While Wachovia has been under extreme pressure to find a merger partner as it struggled to cope with the stress on its loan book, the bank remains an attractive bid target, known as one of the most respectable retail banking franchises in the country. It also boasts a strong retail banking management team. Large retail banking businesses are also perceived as highly attractive and stable amid the turmoil in America’s banking system — at the end of June this year, Wachovia, which is based in Charlotte, North Carolina, had retail deposits of $448 billion (£249 billion).

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