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.

The banks are starting to call in their markers. Home equity lines of credit, also known as HELOCs, were all the rage over the past few years and became very common among homeowners wanting to free up some equity. Perhaps it was for a room addition or college tuition. Maybe it was a 30 foot sail boat or just consolidating credit card bills at the lower interest rates. For me, it was used to create an opportunity fund for real estate investments.

Whatever your deal was, the HELOC landscape is changing rapidly. According to one of my lenders, Wells Fargo Bank (NYSE: WFC), the retail banking industry is looking for safety and liquidity -- and to improve theirs, they may be reducing yours. I have heard the same thing from mortgage brokers and private equity sources.

Lenders have been getting nervous as they watch home values move lower. They were writing equity lines at 80% loan-to-value. To maintain a margin of safety, they are reducing their exposure by calling due any unused portion of the available line. This means that if you had only used $100,000 of your $150,000 equity line you may receive notice in the mail that they are reducing the line to $100,000 and your available cash is zero.

MOST NOTEWORTHY: GFI Group, Wells Fargo and Cirrus Logic were today's noteworthy downgrades:

• Goldman downgraded GFI Group Inc (NASDAQ: GFIG) to Neutral from Buy following the company's announcement that credit chief, Donal Fewer, left the company to go to a rival firm and that about two dozen brokers may defect to follow him.
• Oppenheimer cut Wells Fargo & Company (NYSE: WFC) to Underperform from Perform as they believe the company is under-reserved by at least $4.5B and that there is significant room for multiple contraction.
• Cirrus Logic Inc (NASDAQ: CRUS) was downgraded at Jefferies to Hold from Buy on valuation, as they believe the risk/reward is no longer favorable at current levels.

OTHER DOWNGRADES:

• Baird cut Ryder System Inc (NYSE: R) to Neutral from Outperform.
• Caterpillar Incorporated (NYSE: CAT) was downgraded to Market Perform from Outperform at Wachovia and to Neutral from Outperform at Credit Suisse.
• Goldman removed Royal Caribbean Cruises (NYSE: RCL) from its Conviction Buy List.

MAJOR PAPERS:

• While bank stocks aren't exactly hot, they triggered yesterday's rally because when J.P. Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) reported, there were no unexpected surprises, according to the Wall Street Journal's "Heard on the Street". The ups and downs in the sector are expected to continue.
• According to people familiar with the matter, the Wall Street Journal reported that Yahoo! Inc (NASDAQ: YHOO) may be moving closer to outsourcing its search advertising to Google Inc (NASDAQ: GOOG) after an initial test yielded what they considered to be positive results.

OTHER PAPERS:

• The New York Times reported that AT&T Inc (NYSE: T) is planning today to make an announcement that they will gift $100M to improve the skills of the nation's work force and fight the problem of high school dropouts.

WEB SITES:

• Celgene Corporation (NASDAQ: CELG) is best known for its blockbuster drug Revlimid which is used treat multiple myeloma, a cancer which attacks blood and bones. For patients, it can prolong their lives about 2.9 years, or longer, according to Investor's Business Daily's "The New America".

It has been rumored for the past couple of months or so that J. P. Morgan Chase (NYSE: JPM) has been pondering the acquisition of downtrodden Washington Mutual (NYSE: WM) and may have had some preliminary discussions. I have been thinking that Wells Fargo (NYSE: WFC) might have more than a passing interest too.

I have had business dealings with all three financial companies, including stock ownership, loans, and multiple bank accounts. We have owned JPM stock in the past, but do not currently. We sold most of our WaMu stock last year but still own it in one account. We have never owned Wells, but of the three we would like to get into this one the most, at the right price, of course. I have written extensively about all three companies, so it is with more than a passing interest that I was thinking about M&A issues.

Chase and Wells both could make use of WaMu and gain financially but in different ways. Chase has a much bigger need to establish a presence on the West Coast. It has been expanding over time but its branch system is still weak compared to Wells and the other major banks. With its extensive branch system on the West Coast, WaMu would solve that problem fast.

For the past two years I have been given 50 free (online) stock trades associated with my Wells Fargo & Co. (NYSE:WFC) Portfolio Management Account (PMA). I do not make anywhere near this many trades and do not expect to -- even in the next five years. So for me it makes all trading free. The PMA account has been convenient in many ways because it ties together my equity line, cash management, checking, credit cards, and stock accounts.

Recently, Bank of America Corp. (NYSE: BAC) has done the same thing and offered me 100 free trades. This seems to be the new direction in banking and relationship management. Telecommunications and cable networks are bundling services as well to increase revenue and make the relationship "stickier."

But as the banking services become similar, it's likely I will drop one bank for another and consolidate accounts further. This will likely happen a lot.

So who loses out? For me, in the short run it is likely to be Charles Schwab Corp. (NASDAQ:SCHW) because it still charges me for trading. Without the same network of branches as its competitors, it loses out on face-to-face contact as well. To mitigate this, I think Schwab will have to continue migrating its services toward asset management and banking and be forced to mimic the services of its competitors.

Mellon Bank / Mellon Financial Corp. (NYSE:MEL) (recently acquired by The Bank of New York Co., Inc. (NYSE:BK)) is also at a disadvantage (although it is not a retail bank and holds our business accounts only.) Mellon has been trying for years to increase the depth of our relationship, but for whatever reason has not elected to tie its services together and cannot compete with the full breadth of services offered by Wells and B of A. To its credit, however, Mellon has offered a high level of service for our many enterprises, and I doff my hat to Fred, Roger, Lynn, Janet, Tamara, Josh, German and Caesar in the Century City office. Without that valuable face-to-face relationship with them, we'd probably be gone.

All of the institutions we do business with offer what is referred to generally as "premier" banking. Each requires some level of account size or banking relationship to achieve a particular level of service. As competition heats up, this threshold will probably drop.

The price competition in stock trading and the consolidation of the industry has been, and will continue to be, forefront in the business news for years to come. E*Trade, Scott Trade, Fidelity and TD Ameritrade are all beating each other up with free trading offers, discounts to new clients, banking opportunities and more. You can find these amazing offers spread throughout the AOL Money and Finance pages and every other financial web outlet.

The very word "Bank" has become more and more obsolete, while "Financial Institution" becomes ever more relevant. For the consumer, the opportunities are expanding as the services and price competition keep increasing. Who do you "bank" with? Who do you "trade" with? Is there a better term than financial institution?

Check out my other posts for BloggingStocks here. and be sure and read You don't have to be 007 to find the best picks for 2007!

Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm.