NEW YORK (Bloomberg) - Wachovia Corp., the fourth-biggest US bank, may double its provision for loan losses in the final quarter and said it cannot predict when credit markets will return to normal. The stock posted its worst two-day drop in five years.

Wachovia will set aside $1 billion to cover bad loans, an increase from the previous estimate of $500 million to $600 million, the Charlotte, North Carolina-based company said today in a regulatory filing. Writedowns in October and November tied to securities backed by sub-prime mortgages and collateralised debt obligations already equal the $1.34 billion pretax loss reported for the entire quarter ended September 30, it said.

"None of us know what inning we are in," CEO Kennedy Thompson told investors at a New York conference sponsored by Goldman Sachs Group Inc.

The new estimate fulfills predictions from analysts at Oppenheimer & Co. and Sanford Bernstein & Co. that Wachovia would face higher credit losses. Mr. Thompson called conditions the "toughest" he's seen in 32 years of banking, and an analyst at Sandler O'Neill & Partners said the writedowns may not be over.

Wachovia fell $1.80, or 4.3 percent, to $40.15. New York Stock Exchange composite trading, extending Tuesday's 5.7 percent decline. It was the bank's biggest two-day drop since October 2002.

"I don't think anyone can say with any confidence that this is it," Kevin Fitzsimmons, analyst at Sandler O'Neill & Partners in New York, said in an interview. "Rarely do companies get it right at the first swipe when it comes to credit."

Mr. Fitzsimmons, who rates the company "hold," said on November 9 that the bank may have to report larger writedowns.

Wachovia is confident that "even under stress scenarios" it will pay its 64-cents-a-share dividend, according to a slideshow presentation posted on its website. At current prices, the dividend exceeds six percent annually.

The actual loan-loss provision "will depend on credit conditions and assumptions at quarter-end and may be materially greater or less than the amounts currently estimated," the bank said in its filing.