MercoPress. South Atlantic News Agency

US fourth largest bank looking for 7 billion cash injection

The United States fourth-largest bank Wachovia Corporation reported a 393 million US dollars loss in the first quarter and has been forced to cut its dividend and seek a 7 billion US dollar cash injection to make up its mortgage business.

The Charlotte based bank said it would cut 12% of staff at its trading and investment banking division, the second time it has trimmed staff since early 2007. The bank blamed its troubles on the "severe deterioration" in the US house market and global credit crunch. Wachovia said it was "deeply disappointed" by its performance, which it said had been caused by "the precipitous decline in housing market conditions and unprecedented changes in consumer behavior". "I am deeply disappointed with our first-quarter results, but I am confident we are taking prudent actions in this challenging period to restore Wachovia to a more profitable path," said CEO Ken Thompson Wachovia's troubles with the housing slump have been compounded by its 2006 acquisition of California-based Golden West Financial Corp., a 25 billion US dollar deal whose timing CEO Ken Thompson has acknowledged "was not the best". "With the benefit of hindsight, it is clear that the timing was poor for this expansion in the mortgage business," Thompson wrote in a letter to shareholders in February. But in an interview Monday, Thompson reaffirmed Wachovia's commitment to the mortgage industry, saying "we see mortgage as a big opportunity for us." "We think it's a market that's going to be dominated by a few large banks and we see Wachovia being a player in that," Thompson said. Golden West's loans were concentrated in California, one of the hardest-hit housing markets in the United States. Wachovia said this month that it was considering halting the making of loans, including its signature Pick-A-Payment mortgage loans, in 17 California counties heavily affected by falling home prices and rising foreclosures. Wachovia also said it took write-downs of 2 billion during the quarter related to the credit crunch. It also set aside 2.8 billion to cover problem loans, up from 1.5 billion in the fourth quarter. Credit ratings firm Moody's said Wachovia was facing a "challenging environment". But it stressed that the bank's strong retail deposit base meant that it did not face any liquidity problems It is the latest in a string of top Wall Street names to suffer hefty losses and write down the value of their mortgage-backed investments, whose worth tumbled after thousands of Americans were unable to repay their mortgages. Merrill Lynch and Citigroup have suffered combined losses of more than 43 billion US dollars, although Swiss bank UBS has been worst affected, having to absorb a loss of 37 billion. Wachovia's 353 million US dollar loss in the first three months of this year compared with a profit of 2.3 billion in the same period last year