America’s housing slump caused a $1.3 billion (£639 million) writedown at Wachovia, the fourth-largest bank in the US, triggering its first profit decline in six years.

The group reported a 10 per cent drop in third-quarter net income to $1.69 billion, or 89 cents a share, well below the $1.04 consensus forecast. The poor results sent Wachovia’s shares down by more than 2 per cent in midday trading.

The bank, which is based in Charlotte, North Carolina, was floored by its investment banking division, which recorded a profit decline of more than four fifths to $105 million. The division suffered a $926 million writedown on investments relating to mortgages and on loans to finance leveraged buyouts.

Ken Thompson, the chairman, acknowledged that “disruption in the fixed income markets . . . clearly had a disappointing impact on the results of market-oriented businesses”. Wachovia’s mortgage lending unit also suffered, making up the bulk of a $408 million provision for credit losses, as defaults on mortgage payments jumped in recent months.

However, Wachovia’s largest unit, consumer and business banking, managed to record a 33 per cent rise in profits to $1.44 billion as it attracted 255,000 new current account customers and their deposits.

Wachovia’s disappointing results capped a week in which the impact of the housing slump continued to spread across the economy. In the week following the revelation of big credit-crunch related writedowns at some of Wall Street’s biggest firms, America’s high street banks, including Citigroup, JPMorgan and Bank of America, admitted that they too had suffered badly from the housing slump.

Separately, a proposed new $80 billion fund organised by America’s four largest banks and designed to bail out large parts of the sub-prime mortgage securities market met with a lukewarm response.

Since the fund was set up by Citigroup, JPMorgan and Bank of America on Monday, only Wachovia of the country’s major banks has signed up. Potential backers are thought to believe that the fund has more to do with bailing out Citigroup, which has the biggest exposure to the kind of investments that the new fund is targeting, than to helping other banks.

Meanwhile, Massachusetts securities regulators joined the Securities and Exchange Commission and federal prosecutors in investigating last summer’s collapse under the weight of sub-prime losses of two hedge funds run by Bear Stearns.

Times Recommends

• Lenders face huge hit on mortgage fraud
• Mortgage rescue fund at the ready
• Zoom airline collapses and halts all flights