MarketWatch: Dark day for BoA

Citigroup today revealed plans to split itself in two and a $235 billion (£157 billion) Government bailout as the newly-rescued Bank of America announced that Merrill Lynch, which it acquired this month, reported a $15.3 billion loss.

Last night, the US Treasury agreed to rescue Bank of America with a $138 billion package of loans, guarantees and new capital only days after the lender officially took over Merrill Lynch, the Wall Street brokerage.

But in a further significant development today, Citigroup said that it had entered a so-called loss sharing programme with the US Government over a pool of assets.

The deal means Citigroup will pick up the first $39.5 billion of losses after which the taxpayer would pick up 90 per cent, or $235 billion, of the remaining tab. The move is in addition to last year the $65 billion in funding Citigroup drew from the Government last year.

Citigroup also said today that it would split the business in two: Citicorp will house its retail and investment banking business, and its brokerage and asset management units will be known as Citi Holdings.

Vikram Pandit, chief executive of Citigroup, said: "Given the economic and market environment, we have decided to accelerate the implementation of our strategy to focus on our core businesses.

"This will help us to reduce our balance sheet and simplify our organisation."

At the same time, Citigroup reported an $8.29 billion loss for the fourth quarter of 2008 — its worst quarterly result since the credit crunch began.

The figures were dragged down by huge hits from the banking meltdown, such as $6.1 billion of net credit losses and $6.0 billion in loan loss provisions.

Meanwhile, Bank of America unveiled its own raft of huge announcements.

It revealed a net loss of $1.7 billion for the fourth quarter, its first deficit in 17 years. Merrill Lynch recorded a $15.31 billion loss for the period, although these were not included in Bank of America's figures because the deal was only finalised earlier this month.

Last night's proposed bailout of Bank of America is the second-largest rescue mounted by the Treasury since the rescue of Citigroup last year and indicates the continuing struggle faced by American banks in remaining solvent under the weight of their deteriorating mortgage assets.

The Treasury announced this morning that, with the assistance of the Federal Deposit Insurance Corporation, it would guarantee $118 billion of toxic assets held by Bank of America.

Most of the debts were owned by Merrill Lynch and consist of residential and commercial property loans.

In addition, the Treasury said that it would invest $20 billion in Bank of America from the Troubled Assets Relief Programme (Tarp).

Bank of America has already received $25 billion in funds from Tarp.

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