NEW YORK, Nov 10: The US credit crisis deepened as Wachovia Corp reported a potential $1.7 billion loss on mortgage-related debt, while credit card company Capital One Financial Corp said more customers are missing payments.

The news helped cause losses in broader market indexes, on expectations that mounting write-downs and bad loans may plunge the economy into recession. Shares of financial companies rebounded, but after weeks of heavy selling on worries about the impact from the credit downturn on their bottom lines.

Bank of America Corp and JPMorgan Chase & Co, the second- and third-largest US banks, said the poor market conditions could hurt fourth-quarter results.

“This is now worse than Long-Term Capital (Management),” said Jack Malvey, chief global fixed-income strategist at Lehman Brothers Inc, referring to the hedge fund whose 1998 collapse threatened to unhinge global financial markets. “This is a painful lesson in financial engineering.”

Wachovia, the fourth-largest U.S. bank, said the value of its so-called asset-backed collateralised debt obligations (CDOs) linked to sub-prime mortgages fell about $1.1 billion in October, to $676m from $1.8bn. The pre-tax loss is in addition to a $347 million third-quarter loss, it said.

Charlotte, North Carolina-based Wachovia also expects to boost loan losses by $500 million to $600 million this quarter, largely because of “dramatic declines” in housing values.

Wachovia joined Citigroup Inc, Merrill Lynch & Co, Morgan Stanley and other financial companies to report tens of billions of dollars of sub-prime losses.

Wachovia Chief Risk Officer Don Truslow said at a banking conference in Boston that credit problems in housing were concentrated in “several pockets” in California and Florida.

“The housing market certainly has been deteriorating very, very quickly in certain parts of the country,” he said. “We are not immune.”

Wachovia paid $24.2 billion in October 2006 for Golden West Financial Corp, a California adjustable-rate mortgage lender.

“It now becomes even more obvious that Wachovia purchased the thrift at the wrong time of the cycle,” Deutsche Bank Securities analyst Mike Mayo wrote.

“Sub-prime is a huge issue, and it’s going to get worse,” said Ted Parrish, who helps invest $1.3 billion at Henssler Asset Management in Kennesaw, Georgia.

Credit analysts at Citigroup estimated $64 billion of industry losses from asset-backed CDOs. Britain’s Barclays Plc on Friday rejected rumours it might lose $10 billion.

Separately, Wachovia said it would reduce reported third-quarter profit by $72 million, or 4 cents per share, to reflect its share of Visa Inc’s $2.1 billion antitrust settlement with American Express Co on Wednesday.

CAPITAL ONE CARD LOSSES: Capital One, the largest independent MasterCard and Visa credit card issuer, said its net charge-off rate rose to 3.28 per cent in October from the third quarter’s 2.86 per cent..—Reuters