Citigroup said yesterday that America’s housing crisis could drag it down even further in the fourth quarter, as the world’s largest financial services group announced that the mortgage meltdown had chopped 57 per cent from its third-quarter profit.

The bank reported net income of $2.38 billion, its biggest profit decline in three years, as the housing slowdown fed through into $6.5 billion of writedowns, $600 million more than previously estimated.

Gary Crittenden, Citigroup’s chief financial officer, said that late mortgage payments, which had surged in September, would continue to worsen in the fourth quarter and said that some bonds related to mortgages and other forms of credit may be permanently tarnished after their values plunged in recent weeks. The warning brought an abrupt end to the recent share price rally on Wall Street, sending the Dow Jones industrial average down 108.30 points to 13,984.80.

Mr Crittenden said: “Many parts of the fixed-income market . . . have shrunk dramatically and we are not optimistic they will regain a foothold in the market.”

As a result of the declining housing market, which prompted Citigroup to take a $2.2 billion charge in the third quarter to boost reserves against bad mortgages and other loans, the group said that it would suspend its share buyback programme until next year.

Charles Prince, Citigroup’s chief executive, said: “This quarter’s performance was well below our expectations and frankly surprising. We are working very hard to make sure our return to strong performance is something we can be confident in.”

The bank’s investment banking division reported a 74 per cent decline in third-quarter net income to $446 million, compared with a year earlier, while profit from consumer banking declined by 44 per cent to $1.78 billion. The bank’s alternative investments unit, which includes the Smith Barney brokerage, lost $67 million, compared with a $117 million profit the year before.

Meanwhile, the global wealth management unit jumped by 23 per cent to $489 million.

The group’s other charges included a $1.56 billion writedown on its portfolio of sub-prime mortgage investments and a $1.35 billion write-off on so-called leveraged loans, which the bank underwrote before the credit crunch took hold in summer.

Mr Prince is under considerable pressure to cut costs, which have soared in recent years.

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