Wachovia loses $8.86 billion, slashes jobs

By Jonathan Stempel

NEW YORK (Reuters) - Wachovia Corp, the fourth-largest U.S. bank, on Tuesday posted an $8.86 billion second-quarter loss, slashed its dividend and announced the elimination of more than 10,700 jobs after losses tied to mortgages soared.

Its shares fell $1.25, or 9.5 percent, to $11.93 in premarket trading.

The net loss for the Charlotte, North Carolina-based bank equaled $4.20 per share, and compared with a profit of $2.34 billion, or $1.22, a year earlier.

Excluding items, the loss was $1.27 per share, compared with the average analyst estimate of $1.30, according to Reuters Estimates. Results included a $6.06 billion write-down of goodwill because asset values declined, and reflected a $4.19 billion increase in reserves for bad loans.

"The credit deterioration was worse than expected," said Gerard Cassidy, an analyst at RBC Capital Markets, who has a "sector perform" rating on the bank.

"Wachovia is in capital-preserving mode, which means it has to shrink its balance sheet, leading to a vice-like effect on income statement," he added. "Revenue growth will likely shrink, even as operating expenses rise. This will lead to lower earnings, or possibly losses, in the future."

Results included a $975 million charge related to the tax treatment of leveraged leases, $936 million of losses from disrupted capital markets, a $590 million charge for other legal matters, and $391 million of losses on securities sales.

"These bottom-line results are disappointing and unacceptable," Chairman Lanty Smith said in a statement. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."