As the battle for Wachovia Corp. plays out, even the chief executive officer of Bank One Corp. admits that his company's deal for the North Carolina company's credit card portfolio looks increasingly tenuous.

The two banking companies bidding for Wachovia - First Union Corp. and SunTrust Banks Inc. - are both agent banks for MBNA Corp., the giant credit card monoline that bought those companies' credit card loans in past years and retained the right to market to their customers. An MBNA spokesman said his company would expect to become the credit card issuer for Wachovia whichever bid prevails.

MBNA's agent-bank agreement with First Union stipulates that even if First Union changes its name (as it plans to do in the Wachovia deal) MBNA would have the right to issue cards for the company. "MBNA still has rights over First Union cards, or whatever First Union changes its name to," said Brian Dalphon, the MBNA spokesman, "So in any event, we would expect to be the agent bank."

James Dimon, Bank One's CEO, may have been alluding to this possibility last week when he told investors at the company's shareholders meeting, "Both First Union and SunTrust have credit card deals which could impact our credit card deal."

Should Bank One's agreement for Wachovia's $8 billion of card loans unravel, it would probably break some of the momentum established by Mr. Dimon and the team he has installed at the helm of his First USA credit card subsidiary. Philip Heasley, the unit's chief executive officer, said in a presentation last month at a Goldman Sachs conference that the Wachovia deal signaled the end of First USA's recent struggles and indicated that it is "committed to grow." He said, "Wachovia is proof of our appetite."

But Bank One's deal, which it described in a press release as a "definitive agreement," was signed before First Union and Wachovia arranged their marriage and also before SunTrust stepped in with a higher bid for Wachovia. These developments would seem to pit Bank One, the third-largest U.S. card issuer, against MBNA, the second-largest.

First USA may have been counting on the Wachovia assets to make its card portfolio bigger than MBNA's, and card industry experts say few if any bank card portfolios remain for sale of a size to realize this goal for First USA.

On April 9, Wachovia filed a Form 8-K with the Securities and Exchange Commission announcing "an agreement for Bank One Corporation to acquire Wachovia's consumer credit card portfolio, subject to regulatory approval." Wachovia also reported to the SEC that the companies "had entered into a long-term agent bank relationship under which Wachovia will offer its branded credit cards to retail customers with servicing provided by First USA."

A corporate application to the Office of the Comptroller of the Currency is reputed to detail the transaction, but that section of the application - which includes a purchase-and-assumption agreement, or P&A; an agent-bank agreement; and a servicing agreement - was filed confidentially, according to the OCC.

However, the application's nonconfidential portion refers to a purchase-and-sale agreement dated April 8. This portion concludes, "The parties have agreed to work expeditiously to close the P&A by June 29, 2001, in order to allow for the transition of this business to occur as promptly and smoothly as possible and in order to allow for Wachovia to effectuate an orderly winding down of its credit card business."

Some Bank One executives have continued to express optimism that the deal is solid. At the UBS Warburg 2001 Global Financial Services conference in New York last month, Charles W. Scharf, executive vice president and chief financial officer of Bank One, said First Union's relationship with MBNA would not affect its deal with Wachovia. "We'll continue with Wachovia … We're fine," he said.

But some card industry experts say that either First USA or MBNA would have to budge. Even if each issuer has a legitimate claim to the portfolio, it would be untenable for two companies to issue a single bank's credit cards. Given that MBNA's contracts are more firmly in place, Bank One would be the more obvious candidate to throw in the towel.

"Both MBNA and Bank One can lay some claim to the rights; the question is who would prevail," said Robert Hammer, chairman and chief executive officer of R.K. Hammer Investment Bankers of Thousand Oaks, Calif.

Mr. Hammer, who specializes in brokering card portfolio sales, said the current confusion is likely to clear up shortly, whether through negotiations or arbitration among the parties. "It's a zero-sum game," he said. "There's not going to be any sharing here."

Legal sources say Bank One's situation depends on what kind of contract it signed last month with Wachovia. "The operative issues are really contract and not regulatory," said Noel H. Nation, head of the corporate division in the Miami offices of Baker & McKenzie.

"There can always be conditions for closing in any agreement," he said. "That could be regulatory approval, litigation, or the absence of a material change in status."

If the Wachovia-First Union deal goes through, and MBNA's agent-bank relationship with First Union supersedes Bank One's agreed upon relationship with Wachovia, this could well be a material change in the status of Wachovia's portfolio. Without the agent-bank agreement, say insiders, Wachovia's receivables lose much of their luster, which would prompt Bank One to reevaluate the purchase price or even the entire deal.

"Without the agent-bank relationship, Wachovia's portfolio would be worth a fraction of what it was worth before," said Mr. Hammer. He said that in deals where the agent-bank relationship was dropped portfolio values diminished by 10% to 40%. Wachovia's receivables, he said, would be not be worth what Bank One agreed to pay for the 2.8 million accounts and the rights to solicit more. Bank One did not disclose its bid, but Wachovia said at the time of the announcement that it expected to report a pretax gain of about $1.4 billion after the deal closed, suggesting a premium of at least 17.5%.

So far, it's unknown whether Bank One will or even can renege on its agreement. "All of this depends on whether there is any contingency in the contract - the ifs, ands, or buts," said Lloyd Constantine of Constantine & Partners in New York.

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