Wachovia posts surprise 1st-quarter loss, raises $7 billion

By Jonathan Stempel

NEW YORK (Reuters) - Wachovia Corp posted a surprise first-quarter loss on Monday as credit problems from mortgages and other debt soared, prompting it to raise $7 billion of capital, slash its dividend and cut jobs.

Wachovia, the fourth-largest U.S. bank, sold shares at a discount after boosting its reserves for credit losses 16-fold to $2.83 billion, and writing off $1.56 billion of debt, largely tied to the nation's housing slump and strained credit markets. Wachovia will cut 500 corporate and investment banking jobs this quarter.

"These actions are not without cost, and I wish they were not necessary, but they are," Chief Executive Ken Thompson said on a conference call.

Wachovia shares closed down $2.26, or 8.1 percent, to $25.55 on the New York Stock Exchange. The stock has slumped 32.8 percent this year, more than twice the 24-member Philadelphia KBW Bank Index's 14.7 percent decline.

Most other major U.S. banks are scheduled to report quarterly results by April 22. Several have already raised capital, or cut dividends and jobs.

Wachovia has suffered from its $24.2 billion purchase of mortgage lender Golden West Financial Corp in 2006, near the peak of the U.S. housing boom.

The bank said the housing slump is only half over, and might not hit bottom until the middle of 2009. Wachovia's investment banking unit, a large packager of mortgage debt and provider of loans to fund corporate buyouts, has also struggled. Standard & Poor's cut the bank's credit rating outlook to "negative."

"The Golden West deal could go down as one of the worst-timed transactions in recent memory," said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. "Whenever you grow too fast, and an economic slowdown comes, you pay the price."