The stock of Wachovia Corp. was been downgraded from Buy to Neutral by Merrill Lynch.Merrill Lynch analyst E. Najarian said the Wall Street firm has "reassessed" its view since the acquisition announcement last year regarding Golden West Financial Corp. and now sees more earnings-per-share risk. "As the mortgage cycle slows, investors are likely to remain concerned about the EPS risk of [Golden West's] two-dimensional business mix (mainly option ARMs and CDs)," the analyst said. The Golden West deal and "the realization that Wachovia may, over time, pursue more large deals" are likely to keep Wachovia at one of the lowest price/earnings ratios among banks, Merrill said. Therefore, Wachovia deserves to trade at "about a 10% discount to our large regional bank group, which implies fair value of $56-$57," the analyst opined.

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