Fannie Mae today warned that worse was to come after America's biggest mortgage company swung into the red by $2.3 billion (£1.19 billion), marking a loss four times bigger than Wall Street's expectations.

Shares in the company slid 17 per cent to $8.17 within seconds of Wall Street's opening, less than a third of their value a month ago.

The home loan group, which has been forced to absorb more than $5 billion-worth of credit losses, had reported a net profit of $1.95 billion for the corresponding second quarter a year ago. It has now chalked up four consecutive quarters of losses.

While Fannie Mae sought to reassure New York stock markets by insisting that it was "very unlikely" to need a cash injection from Washington, Daniel Mudd, the chief executive, said: "Volatility and disruptions in the capital markets became even more pronounced in July. In addition, credit performance has continued to deteriorate and, based on our experience in July, we anticipate further increases in our combined loss reserves."

The mortgage group said it would slash its dividend by 5 cents to 30 cents a share and take further steps to bolster its cash reserves. The dividend cut, which will save about $1.9 billion of cash, comes just three weeks after Washington said it was prepared to bail out Fannie Mae and Freddie Mac, America's other big mortgage company.

Fannie Mae also said it would raise fees, cut operating costs by 10 per cent by the end of next year and stop purchasing Alt-A loans, made to borrowers with a solid credit history but little proof of their income, or small or no down payments.

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