BATTLE FOR CONTROL

By Julian Sudre




Banking


More fuel was added to the banking fire when Merrill Lynch announced 10 days ago that it was taking a $8bn-worth of losses on mortages related securities. The writedown was twice the size of the losses that the bank had forecast a couple of weeks back. But to add insult to injury, some financial analysts expect that the banks may make another $4bn write-off in the coming months.
UBS unveiled $3.4bn of third-quarter mortgage-related losses last week and could be prone to taking up to $8bn more losses in the fourth quater of this year. The lastest blow was taken by Citi when the world biggest bank reported $6.5bn in writedowns and losses from credit markets.
Since the announcement, Citi has lost more than a fifth ot its market value and its shares have plummeted 25 per cent in three weeks.
Evidence has proven that the credit turmoil not only has hit the big US banks but also British bank such as Barclays which triggered concerns for investors when shares at the bank lost nearly 6 per cent of friday and amid unsubtantiated reports that it had been forced to seek emergency funds from the Bank of England.
When bullish american analysts forecast that the the credit crunch was over in September, it seems now that people in the City and Wall Street are getting jittery to open more cupboards and find dead bodies lying there. Such tsunami of red ink has engendered a tremendous amount of anxiety amongst investors as this time the $20bn mortgage holdings-related writedown does not appear to have captured all the potential losses.

Citigroup's chief executive, Charles Prince resigned on sunday as investors hope his departure will lead to a break-up of the company. Meredith Whitney, the CIBC World Markets' financial analyst believes the only way forward for new Chairman Robert Rubin and interim chief executive Sir Win Bischoff is to carve the bank up and sell it off. Nevertheless Prince al-Waleed bin Talal, a long-term investor who owns 3.6 per cent stake in City oppposed any break-up.
Tough times for Prince have hit the headlines in recent days more particulary when back in the summer he was reported saying "as long as the music is playing, you have got to get up and dance." What's more he was branded a deal junkie and appeared to have turned a blind eye to the storm in credit markets. The bank said it faced additional writedowns of between $8 to $11bn with shares falling 4.9 per cent to $35.90 after a slide of 11.5 per cent last week and now lie at their lowest level in more than four years. But investors were stumped to know that the bank has a $55bn in subprime mortgage-related exposure on its balance sheet, a number that was vasly larger than the previous assessment of its position as closer to $13bn.

But yesterday the focus was on UBS, which indicated last week it may be forced to take further writedowns in the fourth quarter which could be up to $8.5bn according to Lehman Brothers.
Shares in Barclays and RBS dropped yesterday -- both banks with substantial fixed-income activities -- as investors fretted over more losses to be disclosed.

Nevertheless, after Merrill Lynch ousted its chief, Stan O'neil and Citi's resignation of Chuck Prince; the latter bank made a firm debut yesterday on the Tokyo Stock Exchange rising a five per cent. Citigroup is in the process of acquiring 100 per cent of Nikkio Cordial, Japan 's third-largest securities group, through a share swap that will give current Nikkio Cordial shareholders, shares in Citigroup.