America's fourth-largest bank, Wachovia, is raising $7bn (£3.52bn) through emergency fundraising as the subprime mortgage crisis in the US continues to reverberate through the banking sector.

Wachovia is raising the funds through public offerings of common and convertible preference stock after incurring a surprise $350m loss in the first quarter of 2008 compared with $2.3bn in profit a year earlier.

The news came today as two of the biggest names in Wall Street - Citigroup and Merrill Lynch - were poised to report huge write-downs because of the continuing credit crisis. Analysts are bracing themselves for total write-downs of $17bn when the two banks report their quarterly results later this week.

At North Carolina-based Wachovia, the loss was caused by a rise in provisions against loans which had turned sour, particularly mortgages hit in the housing downturn. These option adjustable rate mortgages begin with a low interest rate, which is then replaced by a heftier charge.

Wachovia's chief executive, Ken Thompson, blamed the "precipitous decline in housing market conditions and unprecedented changes in consumer behaviour" for the figures. The group bought Golden West Financial Corp, a specialist in these adjustable rate mortgages, just before the home loan market plunged. It has set aside $2.8bn for credit related losses compared with $177m in the same quarter last year before the home loan crisis began.

To conserve $2bn of funds, Wachovia is cutting its quarterly dividend by 41% to 37.5 cents per share.

Other US banks have taken action to raise new funds and have tended to approach investors with deep pockets such as sovereign wealth funds.

Wachovia's decision to raise capital and cut its dividend comes at a time when speculation is mounting that banks in the UK will have to take action to bolster their balance sheets.

Mortgage lender Bradford & Bingley has denied reports that it is planning to tap its shareholders for new funds through a rights issue while analysts believe Alliance & Leicester and Royal Bank of Scotland may also be candidates for fundraising exercises.

Shares in B&B fell by 7% in early trading to 155.5p, although they recovered to close down 1.75p, or 1%, at 165.50p.