Two of the world’s biggest banks announced a $10 billion (£4.8 billion) reversal in their fortunes yesterday as they gave warning of massive hits to their third-quarter results.

Analysts and bankers said that further pain would be inflicted on the sector before the credit squeeze had run its course. Attention will next focus on Deutsche Bank, which will report on its third quarter on October 31.

Brad Hintz, an analyst at Sanford C Bernstein, said: “The storm has hit everybody and we certainly haven’t seen the last of it. There’ll be plenty more banks giving profit warnings and making writedowns as their earnings days approach.”

Alan Greenspan, the former Chairman of the US Federal Reserve, offered some hope that the liquidity freeze might be easing. “Is this August-September credit crisis about to be over? Possibly,” he said in London yesterday.

But the three-month Libor euro borrowing rate hit 4.7875 per cent – a six-year high – indicating that the banks remained edgy about potential losses being held by their counterparts.

The American banking giant Citigroup announced almost $6 billion of pretax losses, writedowns and rocketing credit costs. It said that its third-quarter net profit would plunge about 60 per cent to $2.2 billion.

Charles Prince, the Citigroup chairman and chief executive, admitted that the results were a “clear disappointment” and “unusually poor in certain businesses”.

Meanwhile, at the investment banking arm of UBS, Switzerland’s biggest bank, Huw Jenkins, the chairman and chief executive, was ousted after the bank’s fixed-income division wrote down SwFr4 billion (£1.6 billion) of assets held by its hedge fund and mortgage-backed securities businesses.

As a result, the group will post a pretax loss of up to SwFr800 million for the three months to September 30.

UBS said that it would dismiss 1,500 workers, with most expected to have left by Christmas.

In a management reshuffle Marcel Rohner, the group chief executive, will take control of the investment banking business.

UBS’s investment bank employs 22,000 globally. It refused to give a breakdown for its UK offices but is believed to have up to 7,260 on the payroll in London.

UBS admitted that it had not been able to mark all its assets to market, so had to use computer models to estimate their value, raising the prospect that further losses could be revealed once markets opened up again.

Meanwhile, UBS’s Swiss rival Credit Suisse told the market that its net income for the third quarter may be as much as SwFr1.2 billion lower than the consensus forecast of SwFr2.2 billion.

Deutsche Bank has given warning that it will be hit by the market turmoil in the third quarter but has not yet quantified the damage.

It is the fourth major embarrassment for UBS this year, in which it has lost three top executives, including its chief executive Peter Wuffli, who walked out in July after the board refused to make him chairman.

The high-profile departures came on top of the $300 million cost of closing Dillon Read Capital Management, the bank’s failed hedge fund business.

Mr Rohner admitted that there was an “underlying problem” in the way that the bank had focused on highly illiquid, long-dated investments, allowed its balance sheet to grow rapidly and was too free with its funding.

He said: “We kind of drove the business growth into this high volume, high grade exposure.”

Mr Rohner acknowledged that his running of the investment banking business was not a long-term solution. He will be assisted by Robert Wolf, the investment bank’s chief operating officer.

Clive Standish, the group’s chief financial officer, will retire.

One senior banker at a rival business said that he was shocked by the UBS announcement. “I wonder if this isn’t a chance for the new guy to clear the decks, kitchen-sink it and get rid of the people he doesn’t want,” he said.

“But doing it through this kind of upheaval can’t be good for the business.”

The Swiss bank calculates its bonuses using a formula involving the company’s results as well as divisional, business area and personal performance.

Bankers said that it would be difficult to deprive workers outside the areas immediately hit by the losses of their bonuses, for fear of losing even more staff.

Shares in UBS rose more than 3 per cent to SwFr64.50, reflecting investors’ relief that the worst is over for the bank.

London headcount

9,000 - employees at Citigroup in London

8,000 - employees at HSBC

6,500 - employees at Barclays

6,000 - employees at Credit Suisse

5,800 - employees at Morgan Stanley

5,500 - employees at Lehman Brothers

1,100 employees at Bear Stearns

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