Citigroup, the world's largest bank, could be forced to take further investment losses despite yesterday's announcement of an $18billion (£9.1billion) writedown and a 41 per cent dividend cut, analysts said yesterday.

Meredith Whitney, the CIBC analyst, said that she could see the bank writing off another $2billion to $3billion on its remaining $29.3billion net exposure to investments backed by high-risk sub-prime mortgages.

Yesterday, Citigroup reported a $9.83billion fourth-quarter loss and said that it would cut 4,200 jobs from its global workforce of about 300,000. A quarterly dividend cut, from 54 cents to 32 cents, will save the bank about $4.4billion annually.

Adam Compton, an analyst for RCM Investors in San Francisco, said: “The cost-cuts are not enough, but that's intentional and the way it should be. Cost-cuts should be implemented over a long period and Citigroup is looking hard at every option - and there is definitely more to come.”

Ms Whitney said that the remaining write-off on mortgage investment securities could be a lot higher, since portions of its home loan collaterised debt obligations (CDOs) - pools of bonds - still appeared to be overvalued.

Citigroup's remaining exposure to so-called mezzanine CDOs, a relatively high-risk form of such investments, is valued at $3.6billion. This valuation is based on the assumption that such investments are worth 43 cents on the dollar, whereas the market is indicating that they are worth only about 20 cents on the dollar, Ms Whitney said. A far graver danger to Citigroup and its competitors is posed by the accelerating defaults on mortgages and other kinds of loans, such as for cars, she said.

“The bigger issue is the problem in Citigroup's loan book,” Ms Whitney said. “Defaults are going through the roof and it is unclear that we're done. Mortgage portfolio losses grew by 62 per cent in the fourth quarter, compared to the third quarter, and are triple the volume in the third quarter.”

The bulk of the losses that the banks have suffered from America's sub-prime mortgage crisis so far relate to securities, which are sensitive to trends in the housing markets, rather than the homeloans themselves. However, as the number of mortgage defaults continues to rise and declining house prices reduce the scope of homeowners to raise money from refinancing, defaults on all kinds of loans are beginning to increase.

Citigroup said yesterday that it had taken a $3.31billion net charge for bad consumer loans in America for the fourth quarter, compared to only $127million the year before.

A Citigroup spokesman said: “The increase in credit costs primarily reflected a weakening of leading credit indicators, including increased delinquencies on first and second mortgages, unsecured personal loans, credit cards and car loans. Credit losses also increased.”

The group gained a $13.5billion cash injection yesterday. About $6.88billion came from an investment fund controlled by the Government of Singapore. The remainder came from the Kuwait Investment Authority; Prince Alwaleed bin Talal; Sanford Weill, a former Citigroup chief executive; Capital Research Global Investors; Capital World Investors; and the New Jersey Division of Investment.

Meanwhile, Merrill Lynch, another Wall Street bank that has been hit particularly hard by the sub-prime crisis, has agreed a $6.6billion capital injection. The two banks are raising more than $20billion through issuing convertible preferred securities. Merrill's new funders include the Kuwaiti Investment Authority and Mizuho Financial Group, of Japan, as well as clients of TPG-Axon Capital and T. Rowe Price Associates, the American money managers. Merrill is due to announce its year-end results on Thursday. Analysts say that writedowns could be as high as $20billion.

What is a convertible preferred security?

Like most of the recent capital injections into Wall Street companies, Citigroup’s infusion has been structured as a convertible preferred security. These are bonds that pay an annual rate of interest, in this case 7 per cent, that the holder is free to convert into Citigroup shares at a pre-determined, and undisclosed, conversion price.

The bond component of the security gives the owner a steady income stream, while the share component allows them to benefit from a company’s increasing share price. The deal that Merrill Lynch has struck with its new investors is slightly different. Its convertible securities will pay 9 per cent interest a year for 2.75 years, when they will automatically be converted into Merrill Lynch shares.

Korea Investment Corporation

Yesterday’s $2 billion investment in Merrill Lynch represents the first serious, aggressive punt that KIC has made since it was formed in the summer of 2005. Established as something of a “me, too” vehicle to emulate the new sovereign wealth funds emerging in Asia, KIC was designed to reap returns on the Bank of Korea’s swollen foreign exchange reserves

Government of Singapore Investment Corporation (GIC)

Notoriously opaque, backed by a $100 billion war chest and famed for its non-traditional pursuit of higher returns, GIC, since its inception 27 years ago, has been the sovereign fund that every new sovereign fund seeks to emulate

Mizuho Financial Group

The second of Japan’s “big three” banks and, like its hefty peers, the result of an uncomfortable defensive merger at the height of the bad loan crisis that brought Japan to its knees at the beginning of the decade

Kuwait Investment Authority

This consists of two main funds with more than $400 billion in assets. Its General Reserve Fund uses money from the country’s national budget for local investment and its Future Generations fund is used for overseas acquisitions

Citigroup investors:

Sanford Weill/The Weill Family Foundation

Sanford Weill built Citigroup into the world’s biggest financial services supermarket between 1986 and 2003. The Family Foundation is not thought to be a big investor in Citigroup

The Capital Group Companies

Set up in 1931, Capital manages several investment management companies, including Capital Research and Management, Citigroup’s biggest shareholder

The New Jersey Division of Investment

As the pension fund manager for the state of New Jersey, it has a vested interest in Citigroup prospering

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