Fallout from the sub-prime mortgage crisis wreaked further havoc yesterday as Bank of America, Wachovia and PNC all said that investment write-downs would be worse than forecast as the credit crunch worsened.

Bank of America, which said last month that it may need to write down the value of its mortgage bond portfolio by about $3 billion (£1.4 billion) this quarter, conceded that the losses would probably be considerably higher. Wachovia, separately, doubled its provision for fourth-quarter loan losses to about $1 billion, while PNC, in Pennsylvania, said that it would take a $110 million fourth-quarter charge, most of it relating to residential mortgages. Meanwhile, shares in Sallie Mae fell by 13 per cent, the most in 14 years, after America’s largest student lender cut its profit forecast for 2008 by 17 per cent.

Kenneth Lewis, Bank of America’s chief executive, said at a conference in New York, sponsored by Goldman Sachs: “You certainly can assume results will again be quite disappointing. Our trading revenue has been considerably depressed by the lack of business activity and widening spreads in a number of product catergories.”

The credit markets “have turned down again and will probably remain challenging into next year,” he said.

At the same conference, Kennedy Thompson, Wachovia’s chief executive, described the credit markets as the toughest in his 32-year career and said that no one knew when the situation would improve. “None of us know what inning we are in. We know credit quality isn’t improving out there,” he said.

The root of the credit crunch lies in the sudden jump in defaults on American sub-prime mortgages in the spring, after several years of increasingly lax lending by brokers and home-loan companies.

This has fed through into a broader credit crunch as multibillion-dollar losses on Wall Street reduce the banks’ scope for lending and make investors more cautious about buying bonds and other securities.

Yesterday Alan Greenspan, the former Federal Reserve chairman, described the sub-prime mortgage crisis as an “accident waiting to happen” as a period of unprecedented global growth lulled investors into a false sense of security. “The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when market capitalism quietly, but rapidly, displaced much of the discredited central planning that was so prevalent in the Third World,” Mr Greenspan argued in an article printed in The Wall Street Journal yesterday.

“The resulting growth of fairly educated low-cost workers in those countries, together with an increase in their exports, combined to keep down wages and inflation in the developed world.

“Interest rates are, in part, designed to reduce the impact of inflation, which erodes an asset’s value in real terms. As the outlook for inflation continued to remain low, so interest rates came down and borrowing for mortgages and other assets went up.”

Mr Greenspan noted that home prices had risen sharply around the world and that increases in the United States were only “average”.

He believes that there was little that the Federal Reserve could have done to prevent credit markets from seizing up in August: “After more than half a century observing price bubbles evolve and deflate, I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own.”

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