This is a story of four “Ws”: Wachovia Bank (WB), Washington Mutual (WM), Wells Fargo (WFC) and Wilmington Trust (WL). We have two dogs and two sweethearts, with the dogs trying to convince us that they too will eventually become sweethearts. The financial press only likes to faun over Wells Fargo, but I like Wilmington Trust better.

Wilmington Trust has a long history in the wealth management business, and its real estate troubles are limited to a few troubled land and developer loans. Wilmington Trust’s volatility is much lower than the rest of the group. A smaller version of Wilmington Trust is Bryn Mawr Trust (BMTC). Both banks cater to a very wealthy clientele.

The message I got from listening to the conference calls of all four was that they are in a much better position to resolve and prevent mortgage delinquencies than either investment banks or investors in MBS and CDO trusts. The banks own and service most of mortgages on their balance sheets directly – very few are in the form of securities. This allows the banks much more flexibility than their counterparts at Citigroup (C), Lehman Brothers (LEH) and Merrill Lynch (MER). The investment banks cannot force the trusts into providing pragmatic mortgage resolutions. There are too many conflicting stakeholders.

While all four banks claim that they hold no subprime, most of them have experimented in adjustable rates and home equity loans and lines. Wachovia and WaMu have large option payment ARM positions, incurring negative amortization. WaMu claims only 20% of its California mortgages are for properties in the troubled central valley. All tried to convince us that they were safer than we think.

So how are the banks using their flexibility to their advantage? Wachovia has eliminated prepayment penalties on the Golden West Pick-A-Pay mortgages, and is encouraging borrowers to refinance into GSE, FHA, and FMLB compliant mortgages. Wachovia then intends to sell these new marketable mortgages, clearing its book. Wells Fargo will freeze the adjustable rates on its home equity loans to the current rate or less. WaMu was the vaguest in disclosing how it will become more pragmatic, simply saying they would be. All four are reducing uncommitted home equity lines.

At current prices, I believe Wilmington Trust is the most conservative play and WaMu is the best speculation. Given the run in Wachovia and Wells Fargo, wait for a pull back. I do not think there’s an IndyMac in this group, but be cautious.

Disclosures: Author is long C, WB, WFC, WL and WM.