Financial stocks in turmoil as large US banks report massive losses

THE TURMOIL in banking intensified yesterday as US-based Citigroup and Merrill Lynch – owned by Bank of America – reported huge losses and shares in Britain’s Barclays plummeted amid fears it might need more capital.

The grim news from some of the biggest names in global finance stoked investor fears of another round of capital-raisings, triggering another sell-off in bank shares.

The disclosure that Merrill Lynch had suffered a $21.5 billion (€16 billion) operating loss as the value of mortgage-backed assets plunged in the last three months of 2008, came as Bank of America secured a $138 billion bailout from the US government.

The US bank, which finalised an $18.8 billion all-share takeover of Merrill two weeks ago, received a $20 billion capital infusion and a backstop on $118 billion of troubled assets, most of which were in the investment bank.

Bank of America told the government in December that it would not be able to close the deal without help.

Shares in Bank of America, which reported a $2.4 billion loss in a quarter marred by Merrill’s disastrous performance, were down more than 14 per cent in early afternoon.

Citigroup underlined the depth of problems facing banks by reporting an $8.3 billion net loss, its fifth quarter in the red. The figure compared with a year-earlier loss of $9.8 billion, or $1.99 a share. The most recent results included $3.9 billion of gains from the sale of its German retail bank.

The results fell short of analysts’ expectations, and the banking giant said it expects more departures from its embattled board, which is losing former US treasury secretary Robert Rubin as a director later this year.

The troubled financial group suffered nearly $28 billion in writedowns and loan loss provisions in the quarter as the price of mortgage securities plummeted.

The bank, once the largest in the world, has racked up more than $92 billion of credit losses and writedowns over the past 15 months, making it among the largest victims of a credit crunch that has shaken the global financial system.

Citi’s loss for the year was more than $18 billion. The company confirmed its plan to isolate some $800 billion-worth of unwanted assets and businesses into a non-core unit called Citi Holdings.

Citigroup’s fourth-quarter revenue fell 13 per cent to $5.6 billion, reflecting weak capital markets. Its global credit card business saw revenue decline 27 per cent on weakness in North America.

Consumer banking revenue declined 22 per cent, driven by a 47 per cent drop in investment sales. Its institutional clients group, securities and banking revenue was negative $10.6 billion, mainly due to net losses and writedowns of $7.8 billion.

Citigroup said its Tier 1 capital ratio, a measure of financial strength, stood at 11.8 per cent at year-end, well above the level required by regulators. – (Financial Times service, Reuters)