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Analyst Bove: Sell WaMu, Block Wachovia-Morgan

The U.S. government can't let Washington Mutual fail and likely won't let Wachovia take over Morgan Stanley, according to Dick Bove of Ladenburg Thalmann.

"(WaMu's) borrowed $58 billion from the federal home loan system so it can't be allowed to fail," Bove, a widely followed financial investment analyst, said early Thursday on CNBC.

He said the best move would be a takeover for WaMu , by either Wells Fargoor JPMorgan Chase. The government would need to probably assist the transaction, he suggested.

At the same time, the government should be expected block any sale of Morgan Stanley to Wachovia . (See his full comments in the video)

"I cannot imagine that the Federal Reserve would allow that merger to occur because if it occurs then the FDIC has to pick up all the problems related to Morgan Stanley," he said.

He pointed out commercial banks are doing pretty well in the current environment and that investors interested in the financial sector should take note.

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