Investors question financial sector rebound

"Wachovia, along with several other banks, is returning to much more traditional lending practices," said Walter O'Haire, senior analyst at Celent, a Boston-based financial research and consulting firm. "Lend to your existing customers and stay within your own geographic footprint."

Wachovia's problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation's housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West's specialty, which let borrowers skip some payments.

The bank has made several changes to its loan portfolio since, including tightening underwriting standards and stopping making certain loans.

"The path to resolving a crisis starts with acceptance. Wachovia has now accepted that it is in trouble," said Celent senior analyst Bart Narter. "The bank is making changes in its business to contain these losses."

Wachovia said it lost the equivalent of $4.20 per share in the April-June period. In the same timeframe last year, the bank earned $2.34 billion, or $1.22 per share.

Excluding $6.1 billion in write-downs to the value of its intangible assets and merger-related and restructuring charges of $128 million, Wachovia lost $2.67 billion, or $1.27 per share. Analysts on average expected a loss of 78 cents per share on revenue of almost $8.4 billion.

Earlier this month, the bank had projected a $2.6 billion to $2.8 billion quarterly loss, equal to $1.23 to $1.33 per share, excluding goodwill items.

Wachovia said it is setting aside $10.96 billion for credit losses, up from $6.77 billion in the first quarter and $3.55 billion a year earlier. Net charge-offs, loans it doesn't think are collectable, increased more than eight-fold from a year earlier to $1.31 billion.

WaMu reported a loss of $3.33 billion, or $6.58 per share, compared with a profit of $830 million, or 92 cents per share, in the year-ago period. Results include a previously disclosed, one-time reduction of $3.24 per share related to the company's $7.2 billion capital raise in April. Excluding the reduction, the loss per share was $3.34.

Analysts on average expected a loss of $1.05 per share. Analyst estimates typically exclude one-time, unusual charges.