Nov. 9 (Bloomberg) -- Wachovia Corp., the fourth-biggest U.S. bank, said mortgage-related losses and reserves for bad loans may total $1.7 billion this quarter. Bank of America Corp. and JPMorgan Chase & Co. said their earnings also may suffer.

Wachovia plans to set aside as much as $600 million to cover loan losses and cut the value of its securities linked to subprime mortgages by $1.1 billion, according to a filing with the U.S. Securities and Exchange Commission. Bank of America and JPMorgan, the No. 2 and No. 3 lenders, reported that their fourth-quarter results may be hurt by tightening credit markets.

At least nine of the world's biggest banks and brokerages, including Citigroup Inc. and Merrill Lynch & Co., have written down a total of more than $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. Barclays Plc, Britain's third-largest bank, today denied rumors that it may face 10 billion pounds ($21 billion) of losses.

``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.''

Wachovia 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 Charlotte, North Carolina-based Wachovia's most challenging markets as more borrowers pay late or default on their mortgages, Chief Risk Officer Donald Truslow said on a conference call today.

Falling Fast

``The housing market has been deteriorating very, very quickly in certain parts of the country,'' Truslow said. ``We are not immune.''

Wachovia reported Oct. 19 that third-quarter earnings declined, missing analysts' estimates, after the firm booked record writedowns. Net income fell 10 percent to $1.69 billion.

Since then, ``certain financial markets experienced further deterioration,'' particularly for subprime securities and asset- backed collateralized debt obligations, the company said in its SEC filing, dated yesterday. So-called CDOs are securities backed by other bonds or loans.

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

The bank 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.

`Liquidity Support'

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.

Bank of America, led by CEO Kenneth Lewis, said it had provided $12.8 billion of ``liquidity support'' for collateralized debt obligations as of Sept. 30, after hedges. Almost $10 billion of those are backed by subprime residential mortgages, the company said. The firm also held $2.4 billion of CDOs in its trading unit.

``Significant dislocations'' in the debt markets will ``adversely impact'' fourth-quarter results, the bank said in a regulatory filing today. On Oct. 18, the firm reported that third-quarter profit declined 32 percent on trading losses, defaults, writedowns and increased loan reserves that totaled about $4 billion.

Leveraged Loans

JPMorgan, based in New York, said today that it had $40.6 billion of loans to finance leverage buyouts as of Sept. 30, along with unfunded commitments that were difficult to hedge.

``Further markdowns could result if market conditions worsen,'' the company said in its quarterly report.

The slowdown in the mortgage market may make it harder to sell LBO loans, the bank said. Investment banking fees and trading revenue may also decline in the fourth quarter, along with collateralized debt obligations, subprime mortgage holdings and trading positions, the bank said.

JPMorgan, led by Chief Executive Officer Jamie Dimon, wrote down the value of loans for leveraged buyouts by $1.3 billion in the third quarter and marked down the value of CDOs by $339 million, according to today's filing.

Wachovia gained 35 cents to $40.65 in New York Stock Exchange composite trading today. Bank of America also rose, adding 48 cents to $43.98. JPMorgan fell 30 cents to $42.31.

Citigroup, Merrill

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.

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 about 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 Cos. 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.''

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: November 9, 2007 18:50 EST