Two of America’s investment banking titans are scrambling to secure huge new injections of capital from funds backed by foreign governments as they steel themselves to announce billions more in losses on risky bets on the sub-prime home loans market.

Analysts say that Citigroup and Merrill Lynch are set to report losses of as much as $26 billion (£12.7 billion) between them on sub-prime linked securities next week when they announce their latest earnings results to Wall Street.

Merrill Lynch, the third-largest US securities group and America’s largest brokerage, is reported today to be set to write down as much as $15 billion for the fourth quarter next week related to sub-prime losses — twice the figure originally estimated.

Citigroup, where the board is due to meet on Monday to discuss a halving of the bank’s dividend to shareholders, has projected a writedown of $11 billion — although some analysts believe the figure could reach $20 billion.

Faced with these swingeing losses, both banking groups are expected to look overseas for injections of new capital from so-called sovereign wealth funds — the burgeoning investment pools set up by foreign governments, mainly in Asia and the Middle East, to invest parts of their vast national reserves swollen by either soaring exports or surging oil prices.

The sovereign funds have already invested about $27 billion in Merrill, Citigroup, Morgan Stanley and Switzerland’s UBS. Analysts said the indications that Merrill and Citi are returning to this source for further backing was an indication of the scale of the financial stresses inflicted by the sub-prime debacle.

The Wall Street Journal reported today that Citigroup is likely to seek some $10 billion worth of extra capital. Abu Dhabi’s state-backed investment fund already bought a $4.9 billion stake in Citi for some $7.5 billion in November.

Merrill Lynch is thought to be looking to secure some $4 billion, probably from a Middle Eastern source, the Journal also suggested. Previously, Merrill took up a $4.4 billion injection of funds from Temasek, the state-backed Singaporean fund.

The two banks’ quest for new backing comes as they are piloted through the difficulties triggered by the US housing market slump and sub-prime crisis by new chief executives. Vikram Pandit, the new head of Citigroup, and John Thain at Merrill are also likely to seek job cuts among staff and the sale of non-core assets to bolster their groups’ financial standing.

So far, investment banks had shouldered writedowns of nearly $100 billion since last year following their losses on sub-prime and other mortgage backed securities, amid warnings that the losses could rise to $200 billion, or even $400 billion.

But a wave of new investments in Wall Street by Middle Eastern and Asian state-backed funds could create anxiety on Capitol Hill among senators and congressmen over both the increase in US financial dependency, and concerns over national security. Stakes of under 10 per cent by overseas investors do not usually require approval, however, by Cifius, the US Government panel that scrutinises foreign investments for security reasons.

On Thursday, the chairman of the US Senate Banking Committee, Christopher Dodd, said that he backs foreign investment in the US but only “so long as they do not compromise our national security or pose a threat to our economic stability”.

Senate sources have suggested that the committee may hold hearings on the backing of Wall Street banks by sovereign funds later in the year.

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