America’s banking industry continued its rollercoaster ride yesterday as Wachovia, the country’s fourth-biggest bank, announced a record $8.9 billion (£4.45 billion) loss for its second quarter, the elimination of 6,350 jobs and an 87 per cent cut in the dividend.

Robert Steel, the former US Treasury under-secretary, who took over as Wachovia’s chief executive two weeks ago, said that the group would also lose, as part of its cost-cutting drive, 4,400 contractor and staff posts that were open but had yet to be filled.

Lanty Smith, Wachovia’s chairman, said: “These bottom-line results are disappointing and unacceptable. While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility.”

Wachovia’s results were pushed down as the group increased its second-quarter provision for losses on bad mortgages and other loans to $5.57 billion, from $179 million a year ago and $2.83 billion in the first quarter of 2008.

Gerard Cassidy, an RBC Capital Markets analyst, said that the “credit deterioration was worse than expected”. However, Wachovia’s shares jumped $3.61 to close at $16.79 amid investor relief that the bank was cutting costs and that it had no plans to raise money by issuing new shares, which would dilute their ownership of it.

Wachovia said that it would “sell selected non-core assets” and would cut expenses by $490 million in the year’s second half and by $1.5 billion in 2009.

Much of Wachovia’s loss provisions related to Golden West’s $121 billion portfolio of home loans. About 70 per cent of these were made to finance house purchases in California and Florida, two of the biggest victims in the worst US housing crisis since the Great Depression. Wachovia bought Golden West for $24 billion at the top of the market two years ago.

Wachovia has its headquarters in Charlotte, North Carolina, down the road from Bank of America, its rival. It is essentially a retail bank, but has small investment and corporate banking and wealth management units.

The results provide further evidence that the credit crunch is far from over. Stronger than expected results from Wells Fargo, Citigroup, Bank of America and JPMorgan Chase in recent days had outweighed a disappointing loss at Merrill Lynch.

However, fears began to resurface again on Monday night as American Express reported a surprise 38 per cent fall in second-quarter profits and issued a profit warning for the year.

Profits at Wachovia’s retail, small business and commercial division fell 23 per cent to $1.12 billion in the second quarter. Corporate and investment banking profits fell from $779 million to $209 million over the same period.

Profits of the capital management division, consisting of retail brokerage services and asset management, fell from $312 million to $297 million.

To add to banking’s misery, Washington Mutual announced last night that America’s biggest savings-and-loans institution made a $3.3 billion loss in its second quarter, after an $830 million profit a year earlier.

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