Oct. 22 (Bloomberg) -- Wachovia Corp., the bank that came within hours of collapse last month, reported a $24 billion loss today and said business customers drained a quarter of their deposits as the lender sought a rescuer.

The third-quarter loss at Wachovia, which agreed this month to be bought by Wells Fargo & Co., was the most for any bank since the financial crisis began. It reflected an $18.7 billion charge, termed ``unlikely'' by the bank in July, for the tumbling value of acquisitions such as the $24 billion purchase of Golden West Financial Corp. as housing prices peaked.

Wachovia Chief Executive Officer Robert Steel spurned an offer by Citigroup Inc., accepting a $14 billion bid by Wells Fargo that formed the largest U.S. branch network. The loss confirmed analysts' contentions that Charlotte, North Carolina- based Wachovia overpaid for takeovers such as Golden West, the California lender at the forefront of the option-adjustable-rate mortgages that punctured profit throughout the industry.

``Wachovia management always looked at the glass half- full,'' said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. ``Wells Fargo has come in and is saying, `We want to take the worst-case view.'''

The loss was $23.9 billion, or $11.18 a share, compared with net income of $1.6 billion, or 85 cents, in the same period a year earlier, the Charlotte, North Carolina-based company said in a statement. Wachovia lost $2.23 a share excluding the impairment charge.

`Almost Unimaginable'

``Unprecedented and almost unimaginable events of the third quarter'' prompted the bank to take the charge, Chief Financial Officer David Zwiener said today on a recorded call. Zweiner was hired from Carlyle Group last month to replace Thomas Wurtz after two straight quarterly losses.

Among those events: ``Low-cost core'' deposits declined 8 percent to $370 billion in the quarter as business customers withdrew funds. The scale of withdrawals helped prompt the Federal Deposit Insurance Corp. to raise its limit on insured individual deposits to $250,000 from $100,000, Cassidy said.

``There was a run on the bank,'' Cassidy said. ``That loss in deposits was a one of the catalysts to get the FDIC to guarantee all deposits up to $250,000.''

FDIC spokesman Andrew Gray said he couldn't comment on specific deals.

Commercial customers have returned since Oct. 1 because of the proposed merger and new regulations boosting deposit insurance, the bank said.

Future Loan Losses

Regulators pressed for a takeover in September as concern grew that Wachovia wasn't stable, sparking speculation that customers were fleeing. The bank would have had to file for bankruptcy ``the next morning'' had it not initially accepted Citigroup's offer, Steel said in a deposition.

Wachovia added $3.4 billion in reserves for future loan losses, mostly from its home loan and commercial real estate businesses. The bank had $15 billion of loans for which it isn't receiving interest, almost five times the amount in the same period last year.

Profit at the division that took the charge, which includes retail, small business and commercial customers fell 43 percent to $857 million from $1.5 billion last year. The unit was built on the purchases of Golden West, SouthTrust Corp. and other smaller lenders.

`Free Pass'

The loss wasn't necessarily all bad news for Wells Fargo, because a change in tax rules makes it easier to absorb losses on Wachovia's mortgages, according to Chris Marinac, managing director at FIG Partners LLC in Atlanta. ``It's kind of a free pass,'' Marinac said yesterday.

Wells Fargo anticipated the writedowns and charges, said Howard Atkins, chief financial officer of the San Francisco- based bank. Writing down the value of Wachovia's past acquisitions won't affect Wells Fargo's plan to raise $20 billion, he said.

Wachovia fell 38 cents to $5.71 as of 4:01 p.m. and has tumbled 85 percent this year on the New York Stock Exchange. Wells Fargo fell $1.34, or 4 percent, to $31.30. It rose 4 percent this year, the biggest increase in the 24-company KBW Bank Index.

The bank wrote off $810 million in option adjustable-rate mortgages, up from $508 million in the previous quarter. Borrowers aren't paying interest on about $9 billion of the loans, or 7.6 percent of the total.

California Loans

Wells Fargo expects a cumulative loss of $26 billion from option-ARMs, with more than 90 percent of those credit costs to be incurred by the end of next year. Steel in September estimated such losses would reach about $14 billion. Option- ARMs, which Wachovia no longer offers, allow borrowers to defer part of their interest payments, boosting the principal.

The average loan for the bank's California option-ARM customers was worth 104 percent of the underlying home's value as of August, compared with 95 percent for the bank's entire portfolio, Wachovia said.

The corporate and investment bank lost $703 million, compared with a $212 million profit a year earlier. Wells Fargo is studying which investment-banking businesses to retain given its limited experience in the market, CEO John Stumpf has said.

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

Last Updated: October 22, 2008 16:10 EDT