Wachovia posts surprise loss

By Jonathan Stempel

NEW YORK (Reuters) - Wachovia Corp WB.N posted a surprise first-quarter loss on Monday as credit problems from mortgages and other debt soared, prompting the fourth-largest U.S. bank to raise $7 billion (3.5 billion pounds) of capital, slash its dividend and cut jobs.

The bank sold shares at a discount after boosting its reserves for credit losses 16-fold 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.

In late morning trading, shares of Wachovia were down $2.81, or 10.1 percent, to $25. 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 Thompson's $24.2 billion purchase of mortgage lender Golden West Financial Corp in 2006, near the peak of the U.S. housing boom.

It 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.

"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."

FIRST LOSS SINCE 2001