Wachovia to cut jobs after losses

Wachovia, the fourth-largest bank in the US, will cut jobs after posting a loss and cutting the value of its mortgage-backed assets by $2bn (£1bn).

The lender said it would cut 12% of staff at its trading and investment banking division, the second time it has trimmed staff since early 2007.

The bank blamed its troubles on the "severe deterioration" in the US house market and global credit crunch.

The IMF has warned that losses from the credit crunch could top $1 trillion.

'Housing decline'

Wachovia said it was "deeply disappointed" by its performance, which it said had been caused by "the precipitous decline in housing market conditions and unprecedented changes in consumer behaviour".

As a result, it is slashing its dividend after making a $350m quarterly loss and plans a rights issue to raise $7bn in cash.

MAIN CREDIT CRUNCH LOSSES

• UBS: $37.4bn
• Merrill Lynch: $22bn
• Citigroup: $21.1bn
• HSBC: $17.2bn
• Morgan Stanley: $9.4bn
• Deutsche Bank: $7.1bn
• Bank of America: $5.3bn
• Bear Stearns: $3.2bn
• JP Morgan Chase: $3.2bn
• BayernLB $3.2bn
• Barclays: $2.6bn
• IKB: $2.6bn
• Royal Bank of Scotland: $2.6bn
• Credit Suisse:$2bn
• Source: Company reports

Timeline: Sub-prime crisis

It is the latest in a string of top Wall Street names to suffer hefty losses and write down the value of their mortgage-backed investments, whose worth tumbled after thousands of Americans were unable to repay their mortgages.

Merrill Lynch and Citigroup have suffered combined losses of more than $43bn, although Swiss bank UBS has been worst affected, having to absorb a loss of $37bn.

Wachovia has set aside $2.8bn to cover current and future losses stemming from the housing and credit crises, the bulk of these arising from loans which will not be repaid.

This is almost double the $1.5bn it set aside in the final quarter of last year. Wachovia has significant exposure to the flaccid housing market through its mortgage lending subsidiary Golden West Financial Corporation, which it bought in 2006.

Wachovia's $350m loss in the first three months of last year compared with a profit of $2.3bn in the same period last year.

'Prudent action'

The bank said it would save $2bn by taking the "painful" step of cutting its first quarter dividend payment to shareholders by 41% to 0.375 cents per share.

It also plans to tap existing and new shareholders for extra capital through a rights issue, although it did not make clear how much it hoped to secure.

"I am deeply disappointed with our first-quarter results, but I am confident we are taking prudent actions in this challenging period to restore Wachovia to a more profitable path," said chief executive Ken Thompson.

Credit ratings firm Moody's said Wachovia was facing a "challenging environment".

But it stressed that the bank's strong retail deposit base meant that it did not face any liquidity problems.

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