Wachovia Corp. reported a surprisingly large second-quarter loss Tuesday, deflating Wall Street's hopes that the nation's big 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 premarket trading, and after Wachovia's new CEO 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," said Wachovia's Chief Executive Bob Steel on a conference call with analysts. "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 said it lost the equivalent of $4.20 per share in the April-June period. In the same timeframe 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 the merger 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 of out 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, who replaced ousted Ken Thompson earlier this month, 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.

A U.S. appeals court on Monday overturned a decision to fine CBS Corp television stations $550,000 for airing a brief breast flash by pop singer Janet Jackson during the 2004 Super Bowl broadcast.

The U.S. Court of Appeals for the Third Circuit said the U.S. Federal Communications Commission "arbitrarily and capriciously departed from its prior policy" that exempted fleeting broadcast material from actionable indecency violations.

Jackson's right breast was exposed to almost 90 million TV viewers for a fraction of a second during the live 2004 Super Bowl football halftime show in what fellow pop singer Justin Timberlake later called a "wardrobe malfunction."

Timberlake ripped off part of Jackson's bustier exposing Jackson's breast during the show. Despite the brevity, lawmakers and regulators were outraged and vowed a crackdown on broadcast indecency.

U.S. television and radio broadcasters are barred from airing obscene material and are limited from broadcasting indecent materials between the hours of 6 a.m. and 10 p.m., when children are likely to be watching. The restrictions do not apply to cable or satellite services.

CBS apologized and paid the fine, $27,500 for each of the 20 stations it owns, but said it was not clued in ahead of time about the stunt and appealed the decision to the court, based in Philadelphia.

The appeals court said CBS could not be held responsible for the incident.

"Moreover, the FCC cannot impose liability on CBS for the acts of Janet Jackson and Justin Timberlake, independent contractors hired for the limited purposes of the Halftime Show..," wrote Chief Judge Anthony Scirica for the three-judge panel that heard the case.

There was no immediate comment on the ruling by the FCC.