Renewed concerns about Citigroup appeared to be the catalyst for a rout that rapidly spread to many of the world’s top financial stocks.
Citi closed down 6.9 per cent after analysts downgraded the shares and questioned whether further asset writedowns could leave it short of capital.
But many other banks were hit almost as hard, as investors worried about continued fallout from the subprime mortgage crisis. Morgan Stanley, which has suffered less than some of the Wall Street banks, was down 7.2 per cent.
The S&P 500 financials index fell 4.6 per cent, its worst day in five years,
Shares in UBS fell more than 5 per cent as Merrill analysts warned that it could face a further $8bn of writedowns on subprime-related assets.
Of the non-US banks, Barclays was among the hardest hit, falling 5.4 per cent.
The sell-off spread beyond banks. American International Group, the world’s biggest insurer, lost 6 per cent amid concerns about its holdings of mortgage securities.
Meredith Whitney, analyst at CIBC World Markets, said Citi would have to raise more than $30bn in capital through a combination of asset sales, a dividend cut or a share issue to restore a capital ratio that had fallen to half the average of its main rivals.
The report brought new calls for the replacement of Chuck Prince as chairman and chief executive. Bill Smith, chief executive of SAM Advisors and a long-time critic, said: “This is Chuck Prince’s four-year report card and it shows he is literally running the company into the ground.”
The two executives responsible for Citi’s mortgage-backed investments left the group this week, raising fears that it could face further heavy writedowns. But some analysts said concerns about Citi’s balance sheet were overdone.
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