The banking industry will be forced to take hundreds of billions of dollars of further writedowns on mortgage-backed securities after Merrill Lynch sold $30.6 billion (£15.5 billion) of collateralised debt obligations (CDOs) for only 22 per cent of their face value on Monday, according to a leading US ratings expert.

Freddie Mac and Fannie Mae, the financial groups that underpin America’s housing market, will be hit worst as they are forced into a combined writedown of about $100 billion, the Egan Jones Ratings Company believes.

Mike Mayo, an analyst for Deutsche Bank, said that Citigroup would need to write down the value of its CDO portfolio by $8 billion in the third quarter, based on the Merrill sale price. At present Citigroup values the securities at 53 cents in the dollar, more than twice the Merrill sale price.

Merrill Lynch is among the biggest victims of the credit crunch and is selling high-risk assets such as CDOs, which are pools of mortgage bonds, in order to regain financial stability.

The CDOs that Merrill sold, which originally had a face value of $30.6 billion, had been marked down to $11.1 billion at the end of June. Less than a month later, the assets were sold for $6.7 billion to Lone Star, a private equity fund.

Sean Egan, of Egan Jones, called the sale a watershed moment, with implications that would trigger huge additional writedowns on CDOs and related assets worldwide. “This sends a loud and clear signal that the issue with CDOs is not liquidity in the market but problems with the value of their underlying assets,” he said.

Many owners of CDOs have marked down their value insufficiently, believing that such assets were sound and that the market’s appetite for them had dried up temporarily amid nervousness about all but the safest forms of debt.

Mr Egan said that Monday’s sale indicated that the problems were not temporary and that there needed to be widespread devaluation of CDOs. Mr Egan said: “The accountants will have to put significant pressure on their clients to write down these assets — Fannie Mae and Freddie Mac in particular — as this high-profile transaction has underscored the losses that are inherent in these kind of asset-backed securities.”

Freddie Mac disclosed at the end of March that it had $32 billion of losses on various securities that it deemed “temporary” and which were not reflected in its accounts. Fannie Mae reported $9 billion of similar losses at the same time. However, the writedowns will need to be much greater than that, Mr Egan said, in part because the market for CDOs has deteriorated significantly since March.

Fannie Mae and Freddie Mac declined to comment.

The extra losses that Mr Egan forecasts could double writedowns that financial institutions have taken so far in relation to the credit crisis, which stand at $400 billion.

Merrill’s writedown lifted hopes that financial services firms were beginning to take action to draw a line under their sub-prime losses. Those hopes boosted America’s stock markets, along with the announcement of strong second-quarter results by US Steel and a falling oil price. The Dow Jones industrial average closed up by 266.50 points at 11,397.60. Merrill’s shares rose almost 8 per cent to $26.25.

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