Wachovia loses $8.86 billion

By Jonathan Stempel

NEW YORK (Reuters) - Wachovia Corp, the fourth-largest U.S. bank, posted a record $8.86 billion quarterly loss on Tuesday, slashed its dividend 87 percent and announced the elimination of more than 10,700 jobs after losses tied to mortgages soared.

Wachovia shares fell as much as 11.6 percent, but recovered after Chief Executive Robert Steel said he does not plan to issue common stock to raise capital and has many ways to boost capital without selling assets at bargain prices.

Wachovia has nevertheless been among the major lenders hardest hit by the nation's housing crisis, following a disastrous $24.2 billion purchase in October 2006 of Golden West Financial Corp, a California mortgage specialist.

The bank set plans on Tuesday to raise or preserve more than $5 billion of capital by the end of 2009.

"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. Revenue growth will likely shrink, even as operating expenses rise. This will lead to lower earnings, or possibly losses, in the future," he added.

The second-quarter net loss for Charlotte, North Carolina- based Wachovia 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 $2.67 billion, or $1.27 per share. Analysts expected a loss of $1.30 per share, Reuters Estimates said. Wachovia had on July 9 projected a $2.6 billion to $2.8 billion loss excluding items.