Charlotte, North Carolina-based Wachovia Corp., the fourth-largest U.S. bank, said Friday that it was hit with $1.1 billion in losses tied to mortgage securities in October.
The losses are tied to collateralized debt obligations (CDOs), which declined in value by $1.1 billion last month, and will likely fall further as market conditions appear to be increasingly negative.
According to a recent filing with the U.S. Securities and Exchange Commission, all of the bank’s assets classes were labeled “extraordinarily volatile”.
As of Sept. 30, the bank and mortgage lender had $1.8 billion in CDO exposure, which has since fallen to $676 million.
Wachovia stands as the third largest underwriter of CDOs throughout 2007, with a hefty $19.6 billion in volume, much of it tied up in commercial mortgage securities.
Total subprime residential mortgage-backed securities exposure for the bank was unchanged at $2.1 billion during the month, thanks in part to hedging strategies that offset losses.
Wachovia said it also expects to boost its allowance for loan losses in the fourth quarter by $500-$600 million in excess of charge-offs in the quarter.
The news has led many analysts to suspect that the fourth quarter could actually be worse than the third quarter, in which more than $40b in mortgage-related write-downs were chalked.
Shares of Wachovia dipped 44 cents, or 1.09%, to $39.86, well below the 52-week high of $58.80.
Gary Townsend, of Friedman Billings Ramsey & Co, cut his price target for the bank’s shares to $35 from $47 today.