Banking giant Wachovia took a hit from the US housing slump with a quarterly loss announced on Tuesday of $8.662-billion but its shares surged as it unveiled job cut and other steps to shore up its finances.

The loss amounted to 4.20 dollars per share, far above the average Wall Street forecast of a loss of 78 cents per share.

Wachovia also announced it would cut 5350 jobs by the end of 2009 as it restructures in the face of a difficult environment, and a sharp cut in its dividend.

Shares in Wachovia opened with heavy losses but rebounded sharply amid expectations that the banking giant would be taking moves to restore profitability.

Wachovia shares soared 27 percent to end at 16.79 dollars, leading the beleaguered banking sector higher.

"Perhaps the market is enthused about Wachovia's cost-cutting plans ... or, maybe investors are cheered by the Zen-like approach of CEO Robert Steel," said Elizabeth Harrow at Schaeffer's Investment Research.

Credit firm Standard & Poor's downgraded its rating on Wachovia but said the outlook is now stable. It said the bank was hurt by its acquisition of mortgage firm Golden West but is now taking steps to bolster its finances.

"The one-and-a-half years of owning Golden West have taken a toll on Wachovia's earnings performance, but this era is coming to a close," said S&P credit analyst Victoria Wagner.

"Wachovia does not hold substantial exposures to other risk credit exposures in this current stressed banking cycle ... we believe credit expenses should remain manageable at moderately low levels."

Wachovia said it had written off $6.1-billion "reflecting declining market valuations and asset values."

Overall revenues fell 14 percent to $7.5-billion.

"These bottom-line results are disappointing and unacceptable," said Lanty Smith, Wachovia's board chairperson and interim chief executive, pending the arrival of Steel, a former Treasury official, named CEO and president on 9 July.

"While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility. Our company is facing up to these issues, is addressing the challenges head-on and has redirected near-term strategic priorities."

Wachovia said it would cut its dividend to save $700-million per quarter and end its General Bank wholesale mortgage-origination channel.

Some 1000 Wachovia mortgage origination personnel are being redeployed in the company's efforts to assist customers to refinance and restructure mortgages.

Steel said: "In the short term, the entire organization is focused on protecting, preserving and generating capital; reinforcing Wachovia's strong liquidity position; and reducing risk."

The second-quarter loss compared with a profit of $2.34-billion in the same period a year ago.

AFP