The US banking sector was shaken yesterday by deepening concerns over Citigroup’s financial health and the revelation that Bank of America was counting on a new multibillion-dollar capital injection from the government.
Several people close to BofA said that it had told the government that it wanted to scrap its takeover of Merrill Lynch last month after realising the depth of the investment bank’s losses in the fourth quarter.
BofA, which has already been given $25bn (£17bn) in federal funds, closed the deal on 1 January only after receiving a pledge that it would receive billions of dollars from Washington, they added.
BofA and the Treasury declined to comment. People familiar with the situation said that no final decision on the amount of funds to be injected in BofA has been taken.