Wachovia reveals more debt losses

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Wachovia, America's fourth-largest lender, has revealed further exposure to bad debt and the wider downturn in the mortgage sector.

The company said it would now have to swallow losses of $1.1bn (£525m) for October alone, due to the continuing decline in value of its mortgage debt.

The move comes after it recently revealed a $1.3bn loss on such mortgage debt for the July to September period.

Many of America's largest banks have now had to indicate their exposure.

Sub-prime woes

The credit crisis has been sparked by bad debt in the US household mortgage sector, specifically sub-prime home loans.

As US mortgage rates have risen sharply over the past year, the sub-prime sector, which specialises in loans to people with poor credit histories or those on low incomes, has seen record levels of loan defaults.

The losses US banks have had to swallow are twofold.

Firstly, their direct exposure to bad sub-prime debt, and secondly, the knock-on fall in the value of all mortgage debt.

This situation has been exacerbated by the fact the banks have, in recent years, increasingly packaged their sub-prime debt into wider debt packages called collateralised debt obligations (CDOs), which are then sold on to investors.

Yet with investor confidence at rock bottom, banks have struggled to find buyers for these CDOs, which have thus fallen in value.