Nov. 9 (Bloomberg) -- Wachovia Corp., the fourth-biggest U.S. bank, said mortgage-related losses and reserves for bad loans total $1.7 billion so far this quarter, more than the lender reported for the previous three months.

Wachovia set aside as much as $600 million to cover loan losses in the fourth quarter and said securities linked to subprime mortgages fell by $1.1 billion last month. The Charlotte, North Carolina-based company's $1.3 billion of writedowns in the third quarter prompted its first earnings decline in six years.

Chief Executive Officer Kennedy Thompson bought Golden West Financial Corp. for $24 billion in October 2006 to expand into California as housing prices reached peak levels. California and Florida are now Wachovia's most challenging markets as more borrowers pay late or default on their mortgages, Wachovia Chief Risk Officer Donald Truslow said on a conference call today.

``With housing prices declining we are in a bit of a new environment,'' Truslow said. ``The housing market has been deteriorating very, very quickly in certain parts of the country. We are not immune.''

More than nine of the world's biggest banks and brokerages, including Citigroup Inc. and Merrill Lynch & Co., have written down at least $40 billion of bad loans and securities tied to mortgages this year after foreclosures set a record and late payments on U.S. home-loans rose to the highest since 2002. Deutsche Bank AG analyst Michael Mayo has estimated that writedowns may total $50 billion in the second half, while Citigroup analyst Matt King puts the figure at about $64 billion.

Mounting Losses

Citigroup said Nov. 4 that subprime mortgages and related securities lost as much as $11 billion of their value in the past month, a decline that may wipe out half of the firm's profit so far this year. Merrill Lynch reported an $8.4 billion writedown on Oct. 24. Citigroup CEO Charles Prince and Merrill chief Stan O'Neal have since resigned.

Morgan Stanley, the second-largest U.S. securities firm, reported Nov. 7 that its subprime mortgage-related assets lost $3.7 billion in the previous two months, and said its outlook for credit markets was bleaker than in September.

``Any financial institution holding any of this paper doesn't really have a good grasp on what the true value is,'' said Michael Nix, who helps manage $800 million at Greenwood Capital Associates, in Greenwood, South Carolina, including 116,864 Wachovia shares. ``We'll see continued writedowns that come out of the fourth quarter.''

`Extraordinarily Volatile'

Wachovia gained 35 cents to $40.65 at 4 p.m. in New York Stock Exchange composite trading, after setting a 52-week-low of $38.05 earlier in the session. The shares have lost 29 percent this year, compared with a 21 percent decline in the 24-member KBW Bank Index.

The value of the bank's holdings have continued declining in November, with all asset classes ``extraordinarily volatile,'' the company said in a filing with the U.S. Securities and Exchange Commission dated yesterday.

``We consider this to be negative news,'' Deutsche Bank's Mayo wrote in a note to investors today. ``We wonder if additional charges could be needed.''

While Wachovia gets 75 percent of its profits from its retail bank, Thompson has raised the company's corporate and investment bank to top 10 positions in securitizing commercial and mortgage loans. Wachovia's secondary market investments in subprime loans, made to the riskiest borrowers, occurred because the bank relied too heavily on credit ratings that have proven wrong, Truslow said today.

Dwarfed by Competitors

``We clearly could have done a better job around subprime,'' he said.

The company held $676 million of asset-backed collateralized debt obligations as of Oct. 31, down from $1.8 billion at the end of September, according to the filing.

The firm's remaining CDOs are dwarfed by those at Morgan Stanley, Merrill Lynch and Citigroup, Mayo said. Morgan Stanley reported $6 billion of CDO holdings. Merrill, the world's biggest brokerage, has $16 billion, while Citigroup, the biggest U.S. bank by market value, holds $42 billion, he said. All three firms are based in New York.

Wachovia reported Oct. 19 that third-quarter earnings declined, missing analysts' estimates, after booking record writedowns for bad loans and mortgage-backed securities. Net income fell 10 percent to $1.69 billion.

Deterioration

Since then, ``certain financial markets experienced further deterioration,'' particularly for subprime RMBS and asset-backed CDOs, the company said in its filing.

``Of the remaining asset classes where we recorded market disruption-related losses in the third quarter of 2007, the aggregate net market value changes in October in these investments have not been significant,'' the bank said.

Wachovia's former Golden West business will remain profitable next year even if charge-offs come in at twice the peak level of past housing corrections, Truslow said today.

Wachovia organized 52 collateralized debt obligation transactions in 2006 totaling $25.4 billion, ranking third behind Merrill Lynch and Citigroup, analyst Gary Townsend of Friedman Billings Ramsey & Co. wrote in a Nov. 6 report. The transactions made up to 2 percent of Wachovia's earnings last year, he said.

Townsend cut his price target for the bank's shares to $35 from $47 today, while Bear Stearns analyst David Hilder trimmed his fourth quarter earnings per share estimate by 48 percent, to 55 cents. Both analysts rate the bank ``underperform.''

``We expect that credit deterioration will continue in 2008'' Townsend wrote. ``Wachovia's mortgage exposure and deteriorating credit trends will cause the shares to trade at a discount to peers.''

Wachovia's corporate and investment bank made up 14 percent of the company's earnings in the third quarter. Its General Bank unit, which made up 76 percent of earnings, reported a 33 percent increase in profit, aided by the Golden West acquisition.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net