Mack also lobbied these officials to relax regulations that could prevent the Chinese from buying a substantial portion of Morgan, as much as 49 percent, as a way for Morgan to remain independent. But early Thursday Mack went a step further. On Wednesday he fielding calls from Citigroup CEO Vikram Pandit and Wachovia CEO Bob Steele. By the next morning, Mack decided to engage Wachovia in formal talks. One person with knowledge of Mack's thinking says he has "several balls in the air," meaning that he hasn't decided which direction to take just yet. One particular hurdle to a Wachovia deal is the bank's balance sheet - namely $120 billion in risky mortgages. But the bank also has $400 billion in deposits, which would diversify Morgan's funding. Like all investment banks, Morgan Stanley now relies solely on outside sources -traders, accounts with hedge funds and bank lines - to fund its ongoing operations.