Citigroup and Merrill Lynch, the investment banks seeking new chief executives, are thought to have drawn up the same shortlist of candidates.

Both are believed to have identified John Mack, the Morgan Stanley chief executive; John Thain, head of the New York Stock Exchange; Larry Fink, chief executive of Black Rock fund managers; Robert Willumstad, the chairman of AIG; and Josef Ackermann, the head of Deutsche Bank, as candidates to fill their own chief executive roles.

Both banks ousted their chief executives after being forced to admit far bigger than expected losses arising from bond investments backed by sub-prime mortgages.

However, Mr Mack’s own position came under the spotlight yesterday after two Wall Street analysts predicted that Morgan Stanley would write off as much as $6 billion (£2.8 billion) to cover the cost of its exposure to collateralised debt obligations (CDOs).

David Trone, a banking analyst at Fox-Pitt Kelton, the Wall Street bank, told clients that they should expect Morgan Stanley to take a $6 billion charge, while analysts at CreditSights forecast that the collapse of the CDO market would cost the bank $3.8 billion in write-downs.

Morgan Stanley’s quarterly period ends on November 30 and the results are expected to be unveiled in mid-De-cember. If the bank is forced to make the provisions, it would be the latest in a series of finance houses that have had to write off some of their investments that were backed by sub-prime mortgages.

CreditSights also said that it is concerned about Morgan Stanley’s Level III assets. They are securities owned and valued by the bank itself because they cannot be valued in the market.

Morgan Stanley, which has in the past derived a substantial proportion of its income from its advisory and equity underwriting businesses, has recently become a major firm in the mortgage-backed securities business. Sub-prime mortgages were taken up by Americans with poor credit histories and low incomes. The rising number of defaults has triggered the crisis in the banking industry. Wall Street recruitment firms are predicting that bonuses, usually paid after Christmas, will show the first drop in five years.

The fall is expected to have been triggered by the huge losses incurred by investment banks on mortgage-backed bonds since the summer.

One head-hunting firm, Options Group, has forecast that bonuses will decrease by between 5 and 10 per cent this year compared with the year before. However, if banks cut bonuses too far, they may lose their most talented employees to hedge funds, which typically pay more.

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