Chronicles Of Depression 2.0: #027

US banks Citigroup and Merrill Lynch reveal fresh $15bn loss

CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week as they reveal additional sub-prime write-downs totalling $15 billion (£7.6 billion) or more.

In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms.

Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion.

Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red.

It is expected to knock a further 20% from the value of its sub-prime holdings, in spite of the fact that it announced $18 billion of write-downs only three months ago.

The new rash of Wall Street losses and write-downs come in addition to the billions that have already been recorded.

The world’s biggest banks have suffered losses and write-downs totalling almost $250 billion since the beginning of 2007, according to analysts. Last week the IMF shocked markets by saying that global losses from the credit crisis could rise to $945 billion.

Emphasis added by me.

$945 billion. Just $55 billion shy of one trillion dollars.

One trillion dollars.

That will be only the half way mark.

Unless things get even worse. (Which they will. Hello!)

Investors fear for US bank losses

Wall Street is bracing itself for a week dominated by news of large losses, multibillion dollar writedowns and thousands of job cuts as Citigroup and Merrill Lynch, two of the worst casualties of the credit crunch, report results.

Investors and bankers fear that another set of dire numbers by the two lenders will reverse the slight improvement in sentiment in recent weeks and quash hopes of an end to the financial turmoil soon.

“It is all on Citi and Merrill. If they are unable to show investors that they are moving past their current problems, we could be in for a long spring and summer,” a senior Wall Street executive said last week.

And it will begin with the layoffs I expected:

Vikram Pandit, Citi’s chief executive, is working on a cost-cutting plan that could cut more than 25,000 of the company’s 370,000 employees. John Thain, his counterpart at Merrill Lynch, is also in the throes of a restructuring that could axe more than 2,000 jobs.

Wall Street firms are estimated to have cut more than 34,000 jobs since the onset of the credit crunch but experts believe much more is to come.

Emphasis added by me.

These are just half-hearted cuts. When they realize just how much gangrene is threatening them, they will begin the amputations.

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