Bank of America has become the latest institution to take a massive hit from plunging mortgage bond valuations with the announcement that it will take a $3 billion (£1.45 billion) writedown on its portfolio of home loan-backed securities this quarter.

The second-biggest bank in the United States also said that it was injecting $600 million into a structured investment vehicle (SIV), an affiliated entity with a large exposure to high-risk sub-prime mortgages.

Joseph Price, the chief financial officer of Bank of America, gave warning that the market for syndicating loans to back leveraged buyouts remained “fragile”.

That is another potential source of huge losses for banks unable to offload financing that they had underwritten before the credit crunch took hold in May.

To make matters worse, Mr Price acknowledged that further writedowns could be necessary. “As market conditions change and possibly worsen, there could be additional diminution in value,” he said. “There is complexity and difficulty in estimating the value of these positions, especially the collateralised debt obligations [pools of bonds].”

Nevertheless, Mr Price called the losses “manageable”, but he cautioned that capital markets should remain turbulent into next year.

Despite the announcement, Bank of America shares rose $2.29, or 5.2 per cent, to close at $46.27. They began the year at $53.39.

Bank of America’s writedown comes the week after Wachovia, its crosstown rival in Charlotte, North Carolina, announced a $1.1 billion writedown on its mortgage investment portfolio. Bank of America said last month that it would eliminate 3,000 jobs, most of them in its investment banking division.

This quarter Merrill Lynch is expected to take a $10 billion writedown, Citigroup as much as $11 billion and Morgan Stanley up to $6 billion.

Separately, Countrywide, America’s biggest mortgage provider, said that it lent 48 per cent less in October than the year before. Countrywide originated $21.96 billion in mortgages in October, down from $41.9 billion a year ago. However, its October originations increased 4 per cent from its September volume. Countrywide, which reported a $1.2 billion loss in the third quarter, said that it had cut 2,077 jobs last month, as it focused on making smaller, safer and fewer loans. Kohlberg Kravis Roberts, the American buyout firm, reported a 26 per cent rise in first-half profits in a filing ahead of the group’s flotation in the next few months. Net income increased from $529 million to $667.4 million in the first half of the year, as investment revenues jumped by 69 per cent to $3.4 billion on the back of net investment gains that exceeded those for the whole of last year.

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