** US finance on verge of collapse: desperate appeal to Europe for help


Richard Moore


Bracing for a week of writedowns and layoffs
January 14, 2008 at 6:48 AM EST

LONDON ‹ Major American banks are expected to unveil substantial losses and 
secure more cash from abroad in what is shaping up to be a pivotal week for the 
global credit crisis, with central banks also poised to weigh in again.

Citigroup Inc. could write off as much as $24-billion (U.S.) and lay off 20,000 
workers in a drive to cut costs and boost capital, CNBC said on its Website in a
report dated Sunday.

CNBC said the plans will be unveiled on Tuesday when Citi, the largest U.S. bank
by assets, reports fourth quarter results.

Investment bank Merrill Lynch is just as troubled.

The Financial Times said on Monday that Merrill was seeking about $4-billion in 
a second capital raising, and the Kuwait Investment Authority was expected to be
a significant investor.

A deal could be announced as soon as midweek, the paper said, citing people 
familiar with the matter.

The New York Times on Friday reported Merrill was expected to suffer $15-billion
in losses stemming from bad mortgage investments, almost twice the company's 
original estimate, when it releases its results later this week.

The FT also reported on Saturday that Citigroup was putting the final touches to
its second big fundraising, seeking up to $14-billion from Chinese, Kuwaiti and 
other investors.

The $200-billion Kuwait Investment Authority had no immediate comment on Monday 
on the reports it may buy into the two damaged American banks.

Banks, wrestling with huge losses stemming from mortgages lent to people 
ill-equipped to repay them, have been seeking cash from sovereign wealth funds.

In December, Merrill Lynch 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 per cent stake to Abu Dhabi for the same amount.

As well as Merrill and Citi, other big names such as State Street and JP Morgan 
report results this week.

The Federal Reserve will auction $30-billion later on Monday and the European 
Central Bank and Swiss National Bank will continue their unprecedented U.S. 
dollar lending to banks, as part of ongoing coordinated central bank efforts to 
help calm credit market tensions.

The Bank of England will also weigh in.

Results of the latest ³term auctions,² a plan agreed in December and one which 
has helped money market rates ease, will come on Tuesday.

One- to three-month Euribor interbank interest rates fell on Monday amid central
banks' continuing moves to inject extra liquidity into markets.

Most experts say the threat of further losses at major banks from investments 
tied to U.S. subprime mortgages means the crisis is far from over, as crucial 
lending between commercial banks remains patchy at best.

The Fed is forecast to use its other policy lever ­ interest rates ­ before the 
month is out.

It is seen slashing rates by a half-point at its two-day meeting ending on Jan. 
30 after Fed Chairman Ben Bernanke gave a downbeat assessment of the economy 
last week and said the central bank was ready to take ³substantive additional 

The ECB and Bank of England declined to take similar measures when they met on 
monetary policy last week although credit problems in Europe persist.

³It's not yet clear what impact the financial turmoil will have on the real 
economy. We are going through a delicate phase. This is not the time to lose 
control of salaries and costs: we would further lose control on inflation,² ECB 
Executive Board member Lorenzo Bini Smaghi told Italy's La Repubblica newspaper.

Swiss banking giant UBS AG appealed to its shareholders last week to back a 
capital injection by the Singapore government and a Middle East investor and 
warned it still could not predict how the subprime crisis will play out.

And shares in stricken British lender Northern Rock fell as much as 7 per cent 
early on Monday, on fresh concerns the bank is facing imminent nationalization.

Northern Rock is Britain's biggest casualty of the credit crunch and has 
borrowed around £26-billion from the Bank of England since it requested 
emergency funds in September.

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