CHARLOTTE, N.C. -- Wachovia Corp. reported a surprisingly large second-quarter loss Tuesday, deflating Wall Street's hopes that the big U.S. banks are weathering the credit crisis well. The bank said it lost $8.86 billion, is slashing its dividend and eliminating 10,750 positions after losses tied to mortgages soared.

Even excluding one-time items, the results substantially missed analysts' estimates.

But by the afternoon its stock joined a modest Wall Street rally and rose as much as 13 percent -- after its shares sank to mid-1991 levels in pre-market trading, and after Wachovia's new chief executive officer said he plans to cut $2 billion of expenses by the end of next year and sell parts of the fourth-biggest U.S. bank.

Its shares rose $1.19, or 9 percent, to $14.37 in afternoon trading.

"Our reported results today are clearly a disappointing performance for which we take responsibility," CEO Bob Steel said. "We are serious about getting on top of these issues quickly, and we believe we have a good grasp of the challenges facing the economy, the industry and Wachovia."

Three rating agencies -- Moody's Investors Service, Standard & Poor's and Fitch Ratings -- downgraded their ratings on Wachovia's debt, citing increased expectations of losses in the bank's mortgage portfolio and its reduced flexibility to raise new capital.

Wachovia is the Roanoke region's dominant bank, a large area employer with about 2,100 workers and a prominent corporate brand with its name on downtown's tallest building.

Company spokeswoman Jamie Grady said the impact of the cuts in the Roanoke region will be minimal if there is any impact at all.

With a market share of 23 percent, Wachovia is the leading Roanoke-area bank, having garnered deposits of $1.25 billion through a dozen branches, according to a report of the Federal Deposit Insurance Corp. dated June 30, 2007.

Wachovia is the third leading bank in the New River Valley, behind National Bank of Blacksburg, which ranked second, and StellarOne, ranked first.

Wachovia's name has been atop two downtown Roanoke buildings since First Union merged with Wachovia in 2001. One of the buildings belonged to Roanoke-based Dominion Bankshares until its 1993 merger with First Union.

Wachovia said it lost the equivalent of $4.20 per share in the April-June period. In the same time frame last year, the bank earned $2.34 billion, or $1.22 per share.

Excluding $6.1 billion in write-downs to the value of its intangible assets and merger-related and restructuring charges of $128 million, Wachovia lost $2.67 billion, or $1.27 per share. Second-quarter results include the bank's October acquisition of A.G. Edwards Inc., which the bank said is proceeding as planned and is 40 percent complete.

Analysts on average expected a loss of 78 cents per share on revenue of almost $8.4 billion.

Earlier this month, the Charlotte-based bank had projected a $2.6 billion to $2.8 billion quarterly loss, equal to $1.23 to $1.33 per share, excluding goodwill items.

"Wachovia's new management has pulled its head out of the sand and is fully acknowledging the problems, not challenges," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm.

"While the company's wealth management, corporate and investment banks, and capital management groups all had more encouraging results than the general bank, the general bank is the bulk of Wachovia, and it isn't performing well."

Wachovia cut its quarterly dividend to 5 cents per share from 37.5 cents, which will conserve approximately $700 million of capital per quarter. In April, Wachovia slashed its dividend 41 percent.

Steel said it was "clearly prudent and necessary" to further cut the dividend.

"While this is a difficult decision, it is the best course for our shareholders over the long term," he said.

Steel said the company is moving to "sell selected noncore assets" and reduce the number of business customers who use the bank only for loans rather than other services.

Wachovia expects to cut expenses during the second half of this year by $490 million and then reduce 2009 spending by $1.5 billion.

As part of that plan, Wachovia said it would lay off 6,350 workers, affecting more than 5 percent of its roughly 120,000 employees. A majority of those jobs will come from the mortgage area, Steel said.

Wachovia said it will also eliminate 4,400 open positions and contractors. The bank has already cut 2,000 retail mortgage jobs, it said.

During the quarter, Wachovia boosted its provision for loan losses to $5.57 billion from $179 million a year ago, and added $4.2 billion to its reserves for bad loans.

Results also included a $975 million charge related to the tax treatment of leveraged leases, $936 million of losses from disrupted capital markets, a $590 million charge for other legal matters and $391 million of losses on securities sales.

Wachovia's current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation's housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of "Pick-A-Payment" loans, Golden West's specialty, which let borrowers skip some payments.

Wachovia's increase in loan loss reserves included $3.3 billion related to the Pick-A-Payment mortgage portfolio.

In April, the bank tightened underwriting standards, and last month it stopped offering an option on Pick-A-Payment loans that let borrowers pay less than the interest owed.

On Monday, Wachovia said it will stop offering home loans through brokers.

Staff writer Jeff Sturgeon contributed to this report.