NEW YORK - Wachovia Corp. lacks the capital base to compete with bigger banks in the loan syndication market, according to Moody's Investors Service.

The ratings agency late Monday said it was downgrading Wachovia's debt to reflect the company's changing risk profile, its sizeable commercial loan portfolio, and the increasingly competitive pressures it faces in wholesale banking, which includes capital markets and loan syndication.

Wachovia's long-term senior debt was lowered to A1 from Aa3. The downgrade affects $42.2 billion of debt securities.

Wachovia had no immediate comment Tuesday.

In June the Winston-Salem, N.C., banking company, an industry bellwether with a squeaky-clean reputation for managing credit risk, shocked investors by disclosing it would have to raise reserves by $200 million to prepare for a 30% increase in nonperforming loans. Large credits shared by a number of banks to companies in financial trouble were cited as the culprit.

In the second quarter Wachovia had a $70 million increase in nonperforming loans, $50 million of which was an exposure to one such syndicated loan.

Moody's said it was not concerned with Wachovia's underwriting standards, just the growing size of its loan business relative to its capital base.

Wachovia has $72 billion of assets and a market capitalization of $9.87 billion. That is far smaller than some competitors in the loan syndication market. Chase Manhattan Corp., for example, has $426 billion of assets and a market cap of $50 billion, and Bank of America Corp. $672 billion of assets and a market cap of $65.5 billion.

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