Bankìng giants suffer huge losses

The perilous state of the world’s banking system was thrown into sharp relief today after two US financial giants reported massive losses and a leading Irish bank was nationalised.

Citigroup announced that it had suffered a quarterly loss of $8.29bn (€6.25bn), following news that Bank of America was granted $20bn (€15bn) in State aid.

The funds were aimed at helping it absorb losses from the takeover this month of struggling rival Merrill Lynch, which also reported a loss of $15.31bn (€11.54bn) for the period.

Meanwhile at home, Anglo Irish Bank is to be nationalised by the Government after a dramatic announcement last night, while the UK is reportedly thrashing out proposals for another round of bank rescue measures.

Citigroup has already received $45bn (€33.9bn) in US government loans and benefited from a State pledge to guarantee some $300bn (€226bn) in mortgages and other assets.

The scale of Citigroup’s fourth quarter loss – which amounts to around $1.72 (€1.29) per share – represents its fifth straight quarterly plunge. Analysts were surprised by the fall, having expected a figure closer to $1.31 (€0.98) per share.

Citigroup said it now plans to split into two companies. One business, Citicorp, will do traditional banking, and the other, Citi Holdings, will hold the company’s riskier assets.

Today’s Bank of America handout will see the firm offered guarantees against losses on up to $118bn (€88.9bn) in troubled assets.

The US government will take a stake in the bank in return for the aid, which comes on top of the $25bn (€18.8bn) handed to the group in last October’s phase of bank bailouts.

Escalating credit losses have prompted the bank to report a $2.39bn (€1.80bn) loss, although it had seen a $4bn (€3bn) profit for the year.

In Britain it is understood ministers are planning an urgent bank package, which could pave the way for more taxpayer money to be pumped into the sector to offset losses on soaring bad debts.

The measures could also include a relaxation of the rules on balance sheet strength and government guarantees for so-called toxic assets.

Bank shares have plummeted over the past week as confidence in the financial sector collapsed, with fears ahead of the forthcoming results season.

There are concerns that the sector is set to announce yet more hefty writedowns on bad debts.