"We are hard pressed to find examples of financial companies that have successfully shrunk their businesses," she said.

The analyst said Wachovia's assumptions on housing price declines on its entire mortgage portfolio were "too aggressive," while Bank of America Corp (BAC.N: Quote, Profile, Research) was relatively more conservative.

U.S. banks have so far written off billions of dollars in mortgage-related losses and were forced to raise capital, often diluting shareholders, as the subprime flu spread across an array of debt securities.

Wachovia raised $8 billion in capital and slashed its dividend by more than 40 percent, after incurring heavy losses from its mortgage bets.

The company hired Robert Steel as its chief executive last week after ousting its previous CEO Ken Thompson last month.

Wachovia's shares recovered their early losses and were trading down 6 percent at $9.27 on the New York Stock Exchange. The broader KBW bank index was up nearly 2 percent.

(Reporting by Sweta Singh, Dinesh Nair in Bangalore; Editing by Vinu Pilakkott, Anil D'Silva)