The earnings crunch begins in earnest this coming week, with companies from Johnson & Johnson (NYSE: JNJ) and PepsiCo Inc. (NYSE: PEP) to Southwest Airlines Co. (NYSE: LUV) and Harley-Davidson Inc. (NYSE: HOG) scheduled to report results for the quarter just ended. But with the ongoing turmoil in the markets, much attention is on the tech and financial sectors. This week will provide plenty to mull over on both counts.

Wall Street expectations for tech stocks are fairly optimistic. Analysts surveyed by Thomson Financial are looking for chip maker Altera Corp. (NASDAQ: ALTR) and software/service company iGate Corp. (NASDAQ: IGTE) to be the sector's biggest earnings gainers of the week. Altera is expected to report earnings of 30 cents per share (up 33.3% from a year ago) on revenue of $355.1 million. Altera had previously forecast flat sales for the quarter, and shares fell to a 52-week low last week. iGate is expected to report earnings of 14 cents per share (up 42.9%) on revenue of $55.6 million. India-based iGate recently spun off its Mastech consulting services. Shares are down 45.0% in the past three months, and also reached a new 52-week low last week.

San Jose-based Novellus Systems Inc. (NASDAQ: NVLS), on the other hand, is expected to report that net income tumbled 90.4% from a year ago to 4 cents per share, on revenue of $245.6 million. Novellus fell to a 52-week low early last week, and shares are down 44.5% year to date.

This afternoon, Citigroup (NYSE: C) chose to walk away from its discussions to acquire Wachovia (NYSE: WB) but Citi will revive its $60 billion lawsuit against Wells Fargo (NYSE: WFC). Meanwhile, with its $122 billion portfolio of toxic option ARM mortgages -- which add gaps in borrowers' monthly payments to the loan principal -- Wachovia may be too radioactive for Wells Fargo to buy.

How did we get here? On September 29th, Citi thought it had a deal to buy Wachovia's banking operations for $2.2 billion -- Citi would absorb the first $42 billion in losses and stick the FDIC with the rest. In exchange, the FDIC would get $12 billion worth of Citi preferred stock. Last Thursday, Wells Fargo announced a deal to buy all of Wachovia for $15 billion without costing the FDIC anything. Citi sued, the FDIC encouraged the three parties to split the baby, and this afternoon Citi decided to withdraw.

But now that the field is open for Wells Fargo, should it continue with the deal or has it learned that Wachovia's bad assets will make the deal too costly? Although Wachovia would give Wells $448 billion in deposits in 3,300 branches in 21 states, it also has $122 billion worth of option ARM mortgages. These mortgages are likely to default in huge numbers over the next few years. That's because the average option ARM holder will see a 63% rise in monthly payments -- for an additional $1,053 per month. With the economy likely to deteriorate, that could burn a big hole in Wells' $48 billion in capital.

Citigroup (NYSE: C) and Wells Fargo & Co. (NYSE: WFC) have reached a temporary cease-fire in the battle to acquire Wachovia Corporation (NYSE: WB). Late Monday, federal officials urged the dueling suitors to lay down their legal weapons and attempt a compromise in hopes of avoiding a protracted standoff in court. According to reports, new discussions between the banks and the Fed could lead to a division of Wachovia's assets between the two sparring suitors.

For those of you just joining this banking soap opera in progress: Citigroup agreed last Monday to acquire Wachovia's banking operations, with a little help from the Federal Deposit Insurance Corporation (FDIC). However, last Friday, Wells Fargo emerged with a financially superior bid to acquire Wachovia in its entirety, which eventually prompted Citigroup to file suit against its rival.

Today's news has sparked heavy volume on Wachovia's October 5 put option. This contract has seen 22,371 contracts cross the tape today on open interest of 57,273. This could indicate that many speculators are betting that the Wells Fargo bid won't go through -- at least, not in its entirety. That bid priced Wachovia at approximately $7 per share, compared to $1 per share under the terms of the Citigroup deal, according to Bloomberg.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Everything is upside down these days. The folks with all the money and multi-million dollar bonuses are begging for a handout on the pretext that the economy will crash if they do not get one. We're not talking money for coffee or a snack, we're talking billions of dollars.

It is crashing anyway, or at least sinking. It is just a matter of what it takes down along the way. Apparently, the folks at the Treasury and Federal Reserve are now convinced that it will be everything.

The survivors are pawing at the defeated as Wells Fargo tries to grab Wachovia despite its previous tentative agreement with Citigroup Inc. (NYSE: C). While Citigroup gained a point in Wachovia deal over the weekend, the balance has since tilted in favor of Wells Fargo again.

Bank of America (NYSE: BAC) gobbled up Countrywide (done) and Merrill Lynch (NYSE: MER) (a work in progress), while JPMorgan Chase (NYSE: JPM) corralled Bear Stearns and Washington Mutual (NYSE: WM).

Sadly, only the federal government was big enough to swallow the problems of American International Group (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Otherwise,those in the know think world financial markets would have crumbled due to the collateral damage, (pun intended).

When I posted Congress is screwing up -- think backstop not bailout!, I was concerned with the psychological effect as much as the financial effect of not approving the funding, but no doubt the people suffering the most are not those who created the pain.

Citigroup (NYSE: C) claims it has gotten a judge to block a potential merger between Wachovia (NYSE: WB) and Wells Fargo (NYSE: WFC). The big New York bank claims it had a deal to snap up WB, and was done wrong.

According to The Wall Street Journal (subscription required), "State Supreme Court Justice Charles Ramos issued the order blocking the sale of Wachovia Corp., which Wells Fargo & Co. had agreed to purchase in a $14.8 billion deal."

The FDIC says it will step in to help resolve the issue. But, the question is "who is served" by the broader implications of the fight. Having three of the nation's largest financial firm in a dispute during the greatest banking crisis in decades would push Wachovia, already troubled, into greater peril while the fight goes on. It could continue for months when fast action may be the only way to keep Wachovia from failing.

The Treasury has already intervened by pushing banks to merge and nationalizing or taking large financial stakes in companies including AIG (NYSE: AIG). It needs to step into the Wachovia situation before the bank gets into such deep trouble that it is not worth buying.

Douglas A. McIntyre is an editor at 245wallst.com.

Citigroup (NYSE: C) looks like it's trying to get a breakup fee in exchange for giving up on its deal for Wachovia (NYSE: WB). Citi persuaded a New York judge to extend an exclusivity agreement between Citi and Wachovia -- which prohibited Wachovia from talking to other suitors -- through at least October 10th when the parties are scheduled to meet with the judge. Citi can either offer a higher price than its rival, Wells Fargo (NYSE: WFC), or it can negotiate a breakup fee to soothe its hurt feelings.

As a reminder, Citi thought it had a deal last Thursday but on Friday that deal evaporated. Citi's deal for Wachovia's banking operations was for $1 a share, or $2.2 billion, and it left Wachovia's brokerage business as a "stub." On Friday, Wells offered much more -- $7 a share, or $15 billion -- for all of Wachovia's operations. Not only that, but the Wells deal was less risky to the FDIC.

That's because the Citi deal required it to take the first $42 billion in Wachovia losses from Wachovia's option ARM mortgages. The FDIC would take the rest of the losses in exchange for Citi preferred stock and warrants worth about $12 billion. By contrast, the Wells deal -- paid for by issuing $20 billion worth of shares -- would leave the FDIC unscathed.

Wachovia (NYSE: WB) changed direction early this morning as it left behind an FDIC maneuvered deal with Citigroup (NYSE: C), deciding to hitch up with the Wells Fargo's stagecoach instead. It was announced they have "signed a definitive agreement for the merger of the two companies including all of Wachovia's banking operations."

Wells Fargo (NYSE: WFC) last night presented Wachovia with a signed and board-approved offer to purchase Wachovia Corporation as an intact company and without government assistance in a stock-for-stock merger transaction. Under the Wells Fargo proposal, each share of Wachovia common stock will be exchanged for 0.1991 shares of Wells Fargo common stock, representing a value of $7 per share, based on Wells Fargo's closing stock price on Oct. 2, 2008.

The deal valued at about $15 billion, means Wachovia will combine with the only AAA-rated financial institution in the United States.

IN pre-market activity Wahovia and Wells stocks are up while Citi's is down 10%.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WFC.

It appears that Wachovia (NYSE: WB) will be bought out by Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC). If a large American bank cannot be helped by the Treasury bail-out, which will probably be approved by Congress this week. what does it say about the bailout's scope?

According to The New York Times, "Wachovia, like WaMu, has been hobbled by bad mortgages, making a merger more urgent and prompting federal regulators to push for a quick sale."

Why can't Wachovia hang on and sell bad assets to the Treasury? Shouldn't that take the bank out of harm's way? Since the federal government is encouraging the sale, the answer must be that there is fear that the extremely broad $700 billion package has severe limits in terms of which companies it can help and which companies it cannot. Investor confidence in the plan may be so compromised that depositors and other customers are pulling capital out of Wachovia at an alarming rate.

Without a buy-out, Wachovia may fail. The Fed is clearly unwilling to put in capital to back the banks assets. Shareholders who bought Wachovia near its 52-week high of $52.25 will probably get little more than the $10 where the bank's shares trade now. Once again, assets from a big bank may find a home, but shareholders will not.

Douglas A. McIntyre is an editor at 247wallst.com.

As soon as Washington Mutual (NYSE: WM) evaporated, the natural question was: "Who's next?" And after its stock plunged 38% during the day, it now looks like the next one to go will be Wachovia (NYSE: WB). This time the buyer could be Citigroup (NYSE: C),

With $120 billion in adjustable rate mortgages (ARMs) it got through its Golden West Financial acquisition, Wachovia is particularly vulnerable to the capital-eroding impact of a drop in their value. But if Citi bought Wachovia, it would get a stronger presence on the East Coast and its well-regarded retail banking management.

Citi is not the only firm to talk merger with Wachovia -- prior to its decision to turn itself into a bank holding company (BHC) on Sunday, Morgan Stanley (NYSE: MS) was in merger discussions with Wachovia. I just wonder how any deal could be struck with Wachovia that would not involve those nasty ARMs. And if those ARMs are involved in a deal, how can the acquirer avoid those nasty digestion problems that have sent Wachovia shares into a dive.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.

Almost two months have passed since I posted Serious Money: Tempting fate with 10 financials - the results of buying into the following pool of financial stocks at a time when the "hate 'em" factor was at a peak, or so I thought. Now things are even worse, much worse, and a new market bottom was reached only last week.

Trying to predict where this market will go is not possible, but there are many ways to play it. I chose to buy into a pool of financial stocks, believing the survivors would post gains that would overshadow the losers.

When I last updated this story, the pool of stocks was up 26%. Things have gotten worse, but the group is still up 13.89% plus the dividends. This is better than any of the indices, although it is much more speculative.

There was plenty of big news since the last report. While Lehman Brothers Holdings (OTC: LEHMQ) went bankrupt, MBIA Inc (NYSE: MBI) made up for it by more than doubling. Meanwhile, Merrill Lynch (NYSE: MER) is in survival mode supported by a Bank of America (NYSE: BAC) buyout offer. Seven stocks are up, two are down and one is gone (returns from July 29 prices):

The San Francisco Chronicle reports that not only is Wells Fargo & Co. (NYSE: WFC) surviving the chaos on Wall Street, but it just may be thriving. About the only reason that Wells Fargo has been in the news recently is as a potential buyer of Washington Mutual (NYSE: WM). In fact, as markets tumbled early in the week, Wells Fargo shares reached a new 52-week high of $44.69.

Industry observers say that Wells Fargo's stability is a consequence of its limited exposure to failing mortgages, particularly of the subprime variety. It hasn't escaped unscathed, however. It said it would take charges in the third quarter related to investments in Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and Lehman Brothers, but much less than those taken by rivals Wachovia (NYSE: WB) and Washington Mutual.

Wells Fargo has been selectively acquiring assets, mostly in the western U.S., during the economic woes, and is expected to continue to do so. Chairman and former CEO, Richard Kovacevich, is rumored to me looking for one more deal before he retires later this year, according to Reuters. But both Wells Fargo and Washington Mutual have declined to comment on a possible deal. "There's going to be a lot of mergers and acquisitions for either good reasons or because people don't have choices," said Kovacevich, pointing out that Wells Fargo is not the only lender looking to buy.

Wells Fargo shares closed Friday at $39.80 and are up 31.8% year to date. Analysts surveyed by First Call recommend holding Wells Fargo.

This morning, I speculated that Morgan Stanley (NYSE: MS) might reunite with its former parent -- JPMorgan Chase (NYSE: JPM). It looks like I was wrong about that. But the basic idea of finding a merger partner for Morgan Stanley is still alive. The New York Times reports that Wachovia (NYSE: WB) has been in talks with Morgan Stanley about a possible combination.

Morgan Stanley's stock fell another 24% today and Washington Mutual (NYSE: WM), about which I posted this morning, hired Goldman Sachs (NYSE: GS) to find a buyer. So it could be that less than a decade after Congress repealed the Glass-Steagall act -- which prohibited investment and commercial banks from combining -- we will solve our current catastrophic financial problems by reconstituting the very thing that contributed so heavily to the Great Depression.

This looks to me like a desperate move that is only possible because commercial banks were required -- due to their regulations -- to hold more capital than investment banks. The investment banks were vulnerable because they bought such a huge volume of complex securities that nobody now wants to buy. And the decline in the value of these securities is wiping out the slim sliver of capital that they held.

Wachovia Corp. (NYSE: WB - option chain) shares are falling today with most other financial stocks, but we uncovered some interesting insider activity from this week. On Monday, a director at WB bought one million shares for $11.00. This cost him $11 million and could be interpreted as a sign that the stock is probably not going to go away any time soon. However, it is also a good idea to note that the same director bought 500,000 shares last winter at $38, so he may also just be averaging his position downwards. Either way, if you think that the stock won't fall by too much more in the coming months, then now could be a good time to look at a bullish hedged trade on WB, since the put premiums will be high today.

WB opened this morning at $10.44. So far today the stock has hit a low of $8.50 and a high of $10.91. As of 12:55, WB is trading at $9.55, down $1.96 (17.0%). The chart for WB looks bearish and S&P gives the stock a 2 STARS (out of 5) sell ranking.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $5 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 39.9% return in just one month as long as WB is above $5 at October expiration. Wachovia would have to fall by more than 47% before we would start to lose money. Learn more about this type of trade here.

The shares of Wachovia Corporation (NYSE: WB) opened on a gain of nearly 6% this morning, thanks to a positive note from brokerage firm UBS. The analysts raised their price target on WB from $12.50 to $16, and reiterated a "neutral" rating. However, the stock has wasted no time in whittling its early morning gains, and slipped into negative territory before midday.

Yesterday, Wachovia shares closed lower after Friedman Billings & Ramsey reinitiated coverage at "underperform." No surprise there -- but, in today's session, the equity is declining on what should have been a bullish boost from UBS. In fact, most financial stocks are higher today following speculation on a potential buyout bid for Lehman Brothers (NYSE: LEH). The Select Sector SPDR Financial Fund (NYSE: XLF) is sitting on a gain of more than 2% at last check.

The New York Times reports that since we've had such a catastrophic run with home mortgages, it's time to watch the collapse of commercial ones. The same names surface when it comes to the collapse of our financial system -- in the case of commercial mortgages Deutsche Bank (NYSE: DB) ($25.1 billion), Morgan Stanley (NYSE: MS) ($22.1 billion), Lehman Brothers (NYSE: LEH) ($40 billion in commercial mortgages and property), and Citigroup, Inc. (NYSE: C) ($19.1 billion) are among the biggest holders. They are also big names in Auction Rate Securities (ARS).

Why do people think that commercial real estate could be tanking? Here are four reasons:

• Declining property prices. The Times reports that the Moody's/REAL Commercial Property Price Index has dropped 12% since its peak last October.
• Commercial mortgage write-downs. According to the Times, Morgan Stanley reported commercial mortgage write-downs of $400 million and Wachovia (NYSE: WB) said it would take at least $1 billion worth of such write-downs.
• Potential Riverton default. The Times reports that Riverton, a 1,230 unit Harlem development, was premised on the idea that developers could convert "lower-priced rentals to apartments priced closer to the higher market average." But the Times reports that Monday Fitch "issued a negative watch on part of the Riverton Apartments trust" since the developers had not made much progress -- threatening commercial mortgages that Citi and Deutsche Bank hold.