Wachovia, the American banking group that is being rescued by Wells Fargo, reported a quarterly loss of $23.9 billion (£14.7 billion) yesterday, one of the largest deficits recorded by a financial services group.

The bank took an $18.8billion impairment charge as an accounting requirement ahead of its sale to Wells Fargo. Much of the charge relates to Wachovia's $25billion purchase of Golden West, the Californian mortgage group, at the top of the market in 2006.

It came in addition to $4.8billion in charges to build credit reserves and $1.1 billion in costs associated with buying back auction-rate securities.

The third-quarter loss equates to $11.18 per share. It followed a $9.11billion loss in the second quarter and an $0.85-a-share profit the year before.

Adam Compton, an analyst for GMT Capital, said: “These results seem to be roughly in line with expectations. The goodwill impairment charge is only a recognition of what the market already knew - that Wachovia overpaid for Golden West.”

Sharon Haas, of Fitch Ratings, described the results as within Fitch Ratings' expectations. John Stumpf, Wells Fargo's chief executive, said that the results “were very much in line with our expectations”.

Howard Atkins, Wells Fargo's chief financial officer, said that he was on track to complete the merger with Wachovia by the end of the year.

Wachovia said that about two thirds of the goodwill writedown related to its retail and small-business operations, where its $118.7billion portfolio of “option” adjustable-rate mortgages lies. These are seen as being of particularly high risk because many are due to be reset at a higher rate this year.

Most of the rest of the writedown related to commercial banking operations and some to asset management and wealth management.

Robert Steel, Wachovia's chief executive, said: “Although this has been a challenging quarter, Wachovia's underlying businesses remain solid and our franchise exceptionally attractive.”

“We believe that it was prudent for Wachovia to put these losses behind them. The asset writedowns, reserve build and other items are consistent with our acquisition assumptions.” Mr Steel said that they would “have no impact on tangible capital of our planned capital-raise”.

Wells Fargo outbid Citigroup for Wachovia, agreeing to spend $14billion to create the largest branch network of banks in the United States. The deal would be Wells Fargo's biggest acquisition since Norwest acquired the old Wells Fargo ten years ago and adopted the name. Shares in Wachovia fell by $0.13 to $5.96 in midday New York trading. Wells Fargo's stock declined by $0.44 to $32.20.

Profit at the Wachovia division that inlcudes retail and small business fell by 43 per cent to $857million in the third quarter. The corporate and investment bank lost $703million, compared with a $212million profit the year before. The capital management subsidiary lost $499million, compared with a $294million profit last year. The unit includes the AIG Edwards brokerage.

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