Morgan Keegan analyst Robert Patten recommended selling shares of Wachovia Corp. Monday after the stock jumped sharply last week and ahead of a meeting between new chief executive Robert Steel and investors.

Patten said nothing has fundamentally changed recently to spark the increase in Wachovia’s stock price, and the national bank is still facing increasing credit losses. The losses are due to the bank’s high concentration of option adjustable-rate mortgages and commercial real estate loans, which are likely to continue defaulting at an increasing rate, Patten wrote in a research note.

Option adjustable-rate mortgages are loans that allow the customer to choose one of multiple options for monthly payments, including a minimum payment smaller than the interest owed on the loan.

“There are no easy (fixes) here, and in our opinion restructuring this balance sheet will take time, in what is a difficult and volatile market and would probably not come without more pain for existing shareholders,” Patten wrote in the note.

Patten said last week’s rally — Wachovia shares rose 30.9 percent for the week — was likely due to short sellers covering their positions.

Patten reiterated his “Underperform” or “Sell” rating for Wachovia.

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