When Citigroup wrote to investors this week to say it was unwinding one of its hedge funds, the bank highlighted the fundamental problem facing financial companies as they try to shrink their balance sheets – an almost complete lack of buyers for distressed assets.

The Corporate Special Opportunities (CSO) fund, which once had $4.2bn (€3.3bn, £2.8bn) in assets, specialised in buying loans backing buy-out deals, particularly in Europe, but ran into trouble as it tried to sell such assets to meet margin calls from its lenders.