Bank of America (BoA) and Wachovia became the latest US retail banks to report fresh multibillion-dollar writedowns relating to the credit crunch yesterday as they reported billion-dollar profit declines in the fourth quarter.

America’s second-largest bank reported profits down from $5.26 billion (£2.6 billion) the three months to December, 2006 to $268 million at the end of last year.

The bank wrote down the value of investments in high-risk sub-prime mortgages by $5.28 billion – 76 per cent more than the bank estimated on November 13.

In the latest sign that defaults are spreading to all types of loans, the bank also doubled its provision for credit losses to $3.31 billion.

Kenneth Lewis, the BoA chief executive, said: "We certainly are not pleased with our performance. Our fourth-quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy.

"We are cautiously optimistic about 2008, though we believe economic growth will be anaemic at best in the first half."

Mr Lewis has scaled back the group’s investment banking division, which lost $2.76 billion in the fourth quarter, by cutting 1,150 jobs since October and putting the hedge-fund brokerage unit up for sale.

Profits at the consumer and small business banking unit fell by $1.87 billion, while wealth and investment management profits declined by 42 per cent to $334 million.

Wachovia, which is headquartered near Bank of America, in Charlotte, North Carolina, also saw its profits virtually disappear as it took huge provisions against the credit crunch.

Profits in the fourth quarter fell from $2.3 billion to $51 million as Wachovia recorded $1.7 billion of losses on mortgage-related investments.

About $1 billion of the total loss stemmed from investments in sub-prime home loans, with $600 million more relating to commercial mortgages and $123 million for mainstream consumer mortgages.

The bank also set aside $1.5 billion for credit losses, a sevenfold increase from the $206 million provision it made a year before and more than triple the $408 million figure for the third quarter.

Ken Thompson, chief executive at Wachovia, said: "Continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially."

Bank of America and Wachovia’s profit falls come hard on the heels of weak results from JPMorgan, Citigroup and Merrill Lynch.

Last week Citigroup unveiled a $9.83 billion fourth-quarter loss after taking an $18 billion charge against the value of its portfolio of mortgage investments.

The group also announced 4,200 job cuts and a 41 per cent dividend reduction as it sought to cut costs.

Merrill Lynch reported a $9.83 billion loss for the fourth quarter as it took an $18 billion writedown on its mortgage investments.

Meanwhile, JPMorgan Chase unveiled a 34 per cent decline in its fourth-quarter net income to $2.97 billion.

Each of the three banks reported a significant increase in provisions against losses from defaults on loans, as well as increased writedowns from mortgage bonds.

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