The fallout from America’s mortgage meltdown continued thick and fast at Citigroup yesterday amid reports that the world’s biggest bank was poised to cut up to 24,000 positions globally and that the Chinese government had pulled out of a deal to inject about $2 billion into the group.

The job losses, which would represent as much as 8 per cent of Citigroup’s 300,000 staff and are likely to take place over the next year, were reported by CNBC, the US financial television station.

They emerged just as it came to light that the state-owned China Development Bank had rejected an opportunity to invest in Citigroup, following several weeks of discussions.

However, Citigroup is expected to announce today that it has agreed a multi-billion cash injection from a consortium of Asian and Middle Eastern investors, as it seeks to repair its balance sheet.

Citigroup’s balance sheet has been badly damaged by billions of dollars of losses on investments in high-risk "sub-prime" mortgages and the cash infusion is designed to shore up its capital base. The group is expected to announce further sub-prime losses today, with some reports suggesting the figure could be as high as $24 billion for the fourth quarter.

The reports of Citigroup’s latest woes emerged just hours after a probe into Merrill Lynch came to light, in a further sign that life on Wall Street is likely to get harder before it gets easier.

The US Securities and Exchange Commission is investigating whether Merrill Lynch used the knowledge about some of the share trades the brokerage conducted for its clients to make a profit on its own account.

The watchdog’s probe centres on whether some current and former Merrill Lynch executives engaged in a practice known as "front running".

A brokerage is guilty of front running when it receives a large order to buy or sell a particular share from a client and quickly executes its own trade in the same stock before addressing the client’s transaction.

Since large buy or sell orders typically drive a share price up or down, respectively, the broker is essentially profiting from inside information.

It relates to certain Merrill Lynch trades from 2002 to 2006 and one transaction involved is understood to relate to an order from Fidelity Investments, the mutual-fund operator.

The SEC declined to comment on the probe, while Merrill Lynch would only say that the firm always co-operates with regulatory inquiries.

The investigation is understood to be fairly advanced although the SEC is not thought to have decided whether to file a civil lawsuit.

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