Wachovia's Steel Soothes Street (Update3)

Wachovia is also reducing the number of "credit-only" commercial borrowers and looking to sell certain "non-core assets," it says.

Amid severely declining home prices, Wachovia had said last quarter that it would cease originating the controversial negative amortization option for the Pick-a-Pay mortgage product, which was the main product of Golden West, which it acquired in 2006.

"In the short term, the entire organization is focused on protecting, preserving and generating capital, reinforcing Wachovia's strong liquidity position, and reducing risk," Steel said in a statement accompanying the earnings release. "The actions taken and the initiatives under way are expected to generate or preserve more than $5 billion in capital. We ended the quarter with approximately $50 billion in regulatory capital and a Tier-1 ratio of 8%, and we will be intensely focused on improving that level between now and the end of 2009."

Wachovia, along with other banks including Washington Mutual(WM Quote), have already looked to the public markets to raise capital. The company, in April, raised $7 billion through a common stock issuance. Analysts and investors will be listening to hear whether the company discusses the need for further capital raises on its conference call this morning.

Standard & Poor's, Moody's and Fitch Ratings downgraded their ratings on Wachovia's debt following the poor earnings results.

Wachovia's wide miss of Wall Street's expectations comes in contrast to the upside surprise offered by several of its large, national rivals in the past week.

JPMorgan Chase(JPM Quote), Citigroup(C Quote), Wells Fargo(WFC Quote) and Bank of America(BAC Quote) all beat the Street's meager expectations.