LONDON (Reuters) - Citigroup wrote off a colossal $18.1 billion on Tuesday and secured new capital as Merrill Lynch, also seen heading for big losses due to the U.S. subprime mortgage meltdown, announced a $6.6 billion shot in the arm.
Citi, the largest U.S. bank by assets, announced an overall fourth quarter loss of $9.83 billion -- its first quarterly loss since its creation in 1998 -- on the back of losses tied to subprime home loans and other risky debt.
It said it was raising $14.5 billion from offerings of convertible preferred securities and cut its dividend. Saudi Arabia's Prince Alwaleed and the government of Singapore were among the recipients.
"Believe it or not, the write-downs are better than what was being discussed. Yesterday, I saw an analyst estimate of $27 billion," said William Smith, Chief Executive Officer of Smith Asset Management in New York. "It wasn't the worst case scenario."
U.S. investment bank Merrill said it would issue $6.6 billion in preferred shares to investors, including the Kuwait Investment Authority, the Korean Investment Corp and a unit of Japan's Mizuho Financial Group, as it looked to shore up its capital base.
The New York Times on Friday reported Merrill was expected to suffer $15 billion in losses stemming from bad mortgage investments, when it releases its fourth quarter results on Thursday. It wrote off $8.4 billion in the third quarter.
Banks, wrestling with huge losses stemming from U.S. mortgages lent to people ill-equipped to repay them, have actively been seeking cash from abroad.
In December, Merrill secured as much as $7.5 billion by selling a stake to Singapore's government and an asset manager. The month before Citi agreed to sell up to a 4.9 percent stake to Abu Dhabi for the same amount.
Other big names such as State Street and JP Morgan also report results this week, which is shaping up to be a pivotal one in the credit crunch saga.
"The market is set up for bad news," said Adam Cole, global head of FX currency strategy at RBC Capital Markets.
CENTRAL BANK LITMUS TEST
At 1500 GMT, the Federal Reserve, European Central Bank and Swiss National Bank will announce results of their latest "term auctions," which offer billions of dollars in short-term money to banks to try and ease the credit market logjam.
The results will show how much demand there remains for central bank cash, and therefore how tough it is to secure money via interbank lending which has dried up since August when banks realized they did not know which were dangerously exposed to the U.S. subprime sector.
The Fed has put up $30 billion this time, under a coordinated central bank plan hammered out in December, the ECB $20 billion and the SNB $4 billion.
The Bank of England also weighed in, charging a minimum rate of 5.14 percent at its offer of 10 billion pounds of 3-month money on Tuesday, well below its official 5.50 percent rate, suggesting money market conditions continue to ease.
Interbank lending rates have tumbled since the central banks took joint action to pump cash into the money market.
The interbank cost of borrowing euros, dollars and sterling broadly fell again on Tuesday, particularly dollar rates as investors continued to price in sharp U.S. interest rate cuts.
But most experts say ongoing losses at major banks means the crisis is far from over as crucial lending between commercial banks remains patchy at best.
Former U.S. Federal Reserve Chairman Alan Greenspan said the U.S. economy was probably in or about to enter a recession.
The odds are "not overwhelming but they are marginally in that direction" of recession, Greenspan was quoted as saying in a Wall Street Journal interview, published on Tuesday.
The worldwide scope of the wreckage from the U.S. subprime mortgage crisis was again amply demonstrated.
Australian property investor Centro Property Group, which is struggling to refinance its debt, said its current liabilities may be higher than previously stated, sending its shares down as much as 48 percent.
Centro, which owns and manages 700 shopping malls in the United States, has put itself up for sale after falling victim to the credit crunch.
Canadian Imperial Bank of Commerce said on Monday it would take almost $2.5 billion in before-tax writedowns related to the subprime mortgage crisis, and raise about C$2.75 billion ($2.70 billion) in stock sales to rebuild its balance sheet.
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