Shares of Wachovia Corp. and National City Corp., two companies laden with bad mortgages, plunged Friday as lawmakers continued to work on a bailout plan and the industry absorbed the news of the largest banking failure ever.

Wachovia's shares sank 27% as reports emerged late Friday that the Charlotte company had initiated merger negotiations with Citigroup Inc., Wells Fargo & Co., and Banco Santander Central Hisapno SA. Wachovia's shares, which had been down nearly 39% at one point, closed at $8.51.

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