Barclays on Friday took the extraordinary step of declaring its profits for last year were better than expected in an effort to quell concerns that had triggered a 25 per cent plunge in its share price.

The UK’s third largest bank said 2008 profit before tax for the year, reflecting costs, impairments and market valuations, would be “well ahead” of the £5.3bn forecast by analysts.

Barclays moved after its shares fell to 98p, their lowest level since 1993. Earlier, amid intensifying turmoil in the capital markets, US-based Citigroup and Merrill Lynch – owned by Bank of America – reported huge losses, triggering concerns that other lenders were likely to follow suit.

Barclays was not due to report its results until February 17, and its decision to take such an unusual step underscores the bank’s determination to reassure the markets about its financial position.

The bank, with a market value of £8.2bn at Friday’s close, said it knew of no reason why its share price had fallen. The UK four-month ban on short selling of stocks ended on Friday, prompting speculation that Barclays might have been targeted.

The move came after days of speculation that Barclays might need to raise fresh capital.

Barclays has so far avoided turning to the UK government for capital, but has been dogged by accusations that it has been less aggressive than rivals in valuing complex debt securities on its balance sheet.

The bank said on Friday it expected to end 2008 with an equity tier one capital ratio - a measure of financial strength - of 6.5 per cent at the year end and a tier one capital base of 9.5 per cent, after the conversion of mandatory convertible notes it issued to investors as part of its capital raising last autumn.

Barclays’ pre-tax profits are expected to have been boosted by a negative goodwill adjustment related to its acquisition of the US assets of Lehman Brothers.

The grim news from some of the biggest names in global finance stoked investor fears of another round of capital-raisings, triggering another sell-off in bank shares.

The disclosure that Merrill Lynch, once one of Wall Street’s most formidable institutions, had suffered a $21.5bn operating loss as the value of mortgage-backed assets plunged in the last three months of 2008, came as BofA secured a $138bn bail-out from the US government.

The US bank, which finalised an $18.8bn all-share takeover of Merrill two weeks ago, received a $20bn capital infusion and a backstop on $118bn of troubled assets, most of which were in the investment bank. BofA told the government in December that it would not be able to close the deal without help.

Shares in BofA, which reported a $2.4bn loss in a quarter marred by Merrill’s disastrous performance, were down more than 14 per cent in early afternoon.

Citigroup underlined the depth of problems facing banks by reporting an $8.3bn net loss, its fifth quarter in the red.

The troubled financial group suffered nearly $28bn in writedowns and loan loss provisions in the quarter as the price of mortgage securities plummeted.

Citi’s loss for the year was more than $18bn. The company confirmed its plan to isolate some $800bn-worth of unwanted assets and businesses into a non-core unit called Citi Holdings.