Shares in Merrill Lynch and Citigroup plunged yesterday as leading analysts cut their forecasts for both groups' second-quarter results on fears that each faces more huge hits from the credit crunch.

Citigroup's shares fell by $1.27, or 6.74 per cent, to $17.58 in early New York trading, their lowest value since October 1998. This came after William Tanona, a Goldman Sachs analyst, tripled the net loss he expects the group to make in its second quarter to 75 cents a share, or $3.75 billion (£1.9 billion).

Although this would be less than the $5.1 billion group loss that Citigroup reported for the first quarter, it would put the bank into the red for the third consecutive quarter.

Shares in Merrill Lynch tumbled by $1.82, or 5.13 per cent, to $33.64 in midday trading, as Brad Hintz, an influential analyst with Sanford Bernstein, changed his second-quarter forecast for the group from a 82 cents per share profit to a loss of 93 cents a share, or $832 million.

This compares with a $1.97 billion group loss for the previous three months and would mark Merrill's fourth consecutive quarterly loss.

The banks' falls helped the Dow Jones industrial average to sink below 11,740.15, its lowest closing level this year, which occurred in March. The index fell below its January intraday low of 11,634.18 in late morning trading and closed at 11,453.40, down 358.40.

Mr Tanona expects Citigroup to report a total of $8.9 billion in losses this quarter from the credit crunch, adding to the more than $46 billion of losses it has already made in the past year.

“The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought. We see multiple headwinds,” said Mr Tanona, who lowered his rating on US brokerages from “attractive” to“neutral”.

Citigroup has announced 13,000 job cuts this year and the bank this month forecast “substantial” additional writedowns on loans and mortgage-related securities.

Of Merrill Lynch, Mr Hintz said: “Yet again, the biggest swing factor for Merrill's upcoming second-quarter results will be the severity of the writedowns related to Merrill's CDO [pools of bonds] and mortgage-related exposures.

"Unlike in past cycles, this time Merrill has the largest balance-sheet exposure to CDO assets among the large capitalisation brokerage firms.”

Analysts expect Merrill Lynch to take between $3.5 billion and $4.2 billion of writedowns in the second quarter, on top of the $31 billion incurred in the previous nine months.

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