The US credit crisis deepened today as Wachovia Corporation reported a $1.1 billion loss on subprime mortgage-related debt in October, while Capital One Financial Corp said more customers are missing payments.
Shares of both companies fell, amid broad declines in financial stocks. Wachovia, the fourth-largest US bank said the value of so-called asset-backed collateralized debt obligations (CDOs) it holds fell to $676 million as of October 31st from $1.8 billion on September 30th.
The $1.1 billion pre-tax loss is in addition to $347 million in the third quarter, Wachovia said. Charlotte, North Carolina-based Wachovia also expects to boost loan losses by $500 million to $600 million this quarter, largely because of "dramatic declines" in housing values.
Wachovia paid $24.2 billion last year for Golden West Financial Corp, a big California mortgage lender. Wachovia joined a growing list of financial companies - including Citigroup Inc, Merrill Lynch & Co Inc and Morgan Stanley - that have reported losses from worsening conditions in consumer credit and capital markets.
Credit analysts at Citigroup this week estimated industry wide losses from asset-backed CDOs could reach $64 billion. Barclays, the British bank, today rejected speculation it might have a $10 billion write-down.
Gary Townsend, a Friedman, Billings, Ramsey & Co analyst, downgraded Wachovia to "under-perform" from "market perform" and halved his forecast for fourth-quarter operating profit per share to 50 cents, citing "rapidly deteriorating" mortgage conditions.