Both Standard & Poor's and Moody's weighed in on Wachovia today by cutting its counterparty credit rating to A+/A-1 from AA-/A-1 and longterm counterparty credit rating to AA- from the former and downgrading Wachovia's senior debt rating to A1 from Aa3 from the latter. S&P cited higher than expected loss expectations in Wachovia's residential pick-a-pay mortgage portfolio as a reason for the downgrade.

Moody's said its downgrade was driven by a sizable increase in its loss expectations on Wachovia's $122 billion adjustable-rate mortgage portfolio. Moody's had originally put base life-time losses of $8.5 billion on the option ARM portfolio, but losses are now at about $16 billion.