July 28 (Bloomberg) -- Wachovia Corp. may sell its mutual funds, the securities brokerage or Northeast and Texas branches as Chief Executive Officer Robert Steel copes with fallout from a record $8.9 billion quarterly loss, according to analysts.

Businesses that Steel may decide aren't essential to the fourth-largest U.S. bank could include Wachovia Securities, comprised of the A.G. Edwards brokerage acquired last October, and the Evergreen mutual funds, said analysts Brad Hintz of Sanford C. Bernstein & Co. Inc. and Gerard Cassidy of RBC Capital Markets Inc. Wachovia said the brokerage isn't for sale.

``Both of those franchises have real market value even with asset valuations being very low in financial services today,'' Hintz said. ``They aren't making more retail distribution channels any more. Those are like Wal-Marts for the mutual fund industry.''

Steel pledged to sell ``non-core assets'' on July 21 after disclosing the worst loss in Wachovia's history. He didn't define what he considers ``core'' at the Charlotte, North Carolina-based bank, instead promising a review that will be completed in several months. The ex-Treasury Department official joined Wachovia July 9 after the ouster of CEO Kennedy Thompson.

Christy Phillips Brown, Wachovia's spokeswoman, referred inquiries about asset sales to Steel's comment last week, when the CEO said he'll study the bank's units in the months ahead.

Stock Pressure

``Wachovia is firmly committed to our retail brokerage strategy and has no plans to sell it,'' Brown said. The securities unit ``has been and continues to be one of Wachovia Corp.'s best-performing businesses. It is a core business for Wachovia and integral to our long-term strategy.''

Wachovia fell 87 cents to $13.63 at 4:02 p.m. in New York Stock Exchange composite trading. The company's shares have lost more than 60 percent this year.

Selling assets may be necessary as widening losses from the option adjustable-rate mortgages issued by Wachovia's mortgage business deplete capital. The company predicts $9 billion of its $122 billion in option ARMs will prove uncollectible over the next 18 months. Morgan Keegan Inc. analyst Robert Patten calls that view optimistic and projects potential costs may exceed $15 billion.

Capital pressures and reversing Wachovia's stock slide are likely to force an eventual sale, said Cassidy, who rates the bank at ``sector perform.''

``I'd be surprised if it's sold in the near future unless they really see something scary on the horizon,'' Cassidy said. ``But I think it will happen because credit problems will become more severe for Wachovia and its peers, and they will need to use all means possible to build up capital.''

Potential Value

Steel is more likely to sell parts of the retail banking business, said Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York, which manages about $150 million in assets. Regions such as New York and Texas, where Wachovia doesn't have major market share, could be carved off, he said.

``Other bankers will pay up for those assets in markets where Wachovia doesn't have enough scale to be a major player now,'' he said. ``Selling attractive assets may be the price you have to pay in this market.''

Wachovia's capital management unit could fetch $10 billion to $15 billion, CreditSights Inc. analyst David Hendler said in a July 22 report, based on annualized earnings of about $1 billion.

Capital Management

``The company's capital management segment, which includes retail brokerage and asset management, makes the most sense for a sale as it is a distinct business which could be separated from the general bank with less impact,'' he wrote in the report. The general bank includes the company's retail banking operations.

Wachovia Securities is the second-biggest U.S. securities brokerage behind Merrill Lynch & Co. based on the size of the sales force. It employs 14,632 brokers, including about 6,300 who came with the $6.6 billion acquisition of St. Louis-based A.G. Edwards. Assets under management trail Merrill Lynch and Citigroup Inc.'s Smith Barney unit.

Profit at the capital management unit, which includes Evergreen, fell 4.8 percent in the second quarter to $297 million from the year-earlier period. Revenue was $2.3 billion, about a quarter of Wachovia's total.

Evergreen ranked as the 36th-largest investment manager in the world in 2007, according to the Pensions & Investments trade publication. The unit employs 1,032 people managing $246 billion as of June 30 with 93 mutual funds and about 2.8 million shareholders.

Prudential Stake

Prudential Financial Inc., which owns 23 percent of Wachovia Securities, has an option to force a sale of its stake, effective July 1, 2008, David Carroll, head of Wachovia's capital management unit, said on a conference call with analysts last week. Carroll said Prudential isn't likely to force a sale of its stake because of the unit's profitability and strong prospects. Wachovia officials declined to comment when an analyst asked if the unit was worth about $15 billion.

National City Corp., KeyCorp and Fifth Third Bancorp, all based in Ohio, are considering the sale of their mutual fund units, the Wall Street Journal reported July 23. Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, is discussing a sale or spinoff of Neuberger & Berman LLC, CNBC said July 25.

Steel on the conference call that said Wachovia is ``strong and well-positioned in so many parts of asset management that it just seems like a great business for us to continue to drive and grow.''

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: July 28, 2008 16:16 EDT