New York banking giant Citigroup is in talks to purchase Maryland-based bank Chevy Chase, according to the Wall Street Journal. This is a dramatic downsize in acquisition prospects for Citi, which recently made a controversial failed bid for Wells Fargo.

Both banks declined to comment when contacted by WealthBriefing.

The small regional bank, which has assets of $14.9 billion, is also in talks with competing bidders, the newspaper said.

Chevy Chase Bank suffered heavily due to the real estate market decline. As of last month, $420 million, or about 4 per cent, of its domestic real estate loans were in a non-accrual status, according to the Washington Business Journal. But the bank did manage to recover enough from a first quarter 2008 loss to post a second quarter profit of $2.2 million.

Chevy Chase is a far more accessible merger for Citi than a recent target and presents a good opportunity to boost the bank’s capital base at this difficult time.

Citi announced in late September that it had agreed to purchase the banking operations of Wachovia, which included $448 billion in deposits and roughly 3,300 branches nationwide for $2.16 billion, while the Federal Deposit Insurance Corporation agreed to take on most of the risk in Wachovia's loan portfolio.

Citi lost out after Wells Fargo offered $15 billion for Wachovia, without need for government backing.

Goldman Sachs was rumoured to be interested in merging with Citi in October, but the latter immediately turned down the proposal.