Bank of America Corp. and Wachovia Corp., the second- and fourth-largest American banks, said earnings plummeted after more than $6 billion of combined mortgage-related writedowns. Bank of America’s fourth-quarter profit dropped 95% to $268 million, while net income at Wachovia was almost wiped out, plunging 98% to $51 million. Both companies joined a bank stock rally after the Federal Reserve lowered its benchmark interest rate in an emergency move.

“This move by the Fed is just what the banks need,” the manager of the world’s biggest bond fund at Pacific Investment Management Co., Bill Gross, said in a Bloomberg TV interview. “They need the ability to pay deposits at 2 to 2.5% and put those monies back out at 4 or 4.5 or 5%. They didn’t have that opportunity. Now they should have it and profitability ultimately should come back.”

Bank of America’s chief executive officer, Kenneth Lewis, said market conditions are the “most stressful” since 2001 and forced the Charlotte, N.C.-based company to double reserves for potential loan losses to $3.3 billion in the fourth quarter. The bank said earnings will improve this year. Mr. Lewis and the CEO of Wachovia, Kennedy Thompson, said they don’t expect to cut their dividends.

Bank of America gained 4% to $37.39 in New York trading at 4:41 p.m. and Charlotte-based Wachovia rose 3.6% to $31.91.

“The Fed can alleviate the amount of losses they take and make a recession shorter-lived, but the problem with Fed cuts is that it takes three to four quarters for it to pass through to the real economy,” a manager of $200 million at Seacliff Capital in San Francisco, James Ellman, said.

Wachovia and Bank of America reported the lowest quarterly profits in at least six years during the country’s worst housing slump in more than two decades. The world’s biggest banks and brokerages have disclosed more than $120 billion of writedowns and credit losses since June, mostly caused by the collapse of the subprime mortgage market.

Messrs. Lewis, 60, and Thompson, 57, said yesterday that the companies were battered by the fixed-income markets. Mr. Lewis said he expects economic growth to “be anemic at best in the first half.”

Bank of America earned 5 cents a share in the fourth quarter, excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, falling short of the 21-cent average estimate from 21 analysts surveyed by Bloomberg. Wachovia’s profit of 8 cents a share, excluding takeover-related costs, also missed analysts’ estimates.