Swiss banks UBS and Credit Suisse and America's Citicorp added to the ranks of casualties from a global credit crunch on Monday, prompting money market rates to climb on fresh concern about the depth of the crisis.
But former U.S. Federal Reserve Chairman Alan Greenspan detected a glimmer of hope.
UBS unveiled $3.4 billion in losses, mainly on securities linked to the U.S. subprime mortgage sector, ousted senior managers and slashed jobs, while Credit Suisse said it would be adversely impacted by the market turmoil but would remain profitable in the third quarter.
Citigroup, the largest U.S. bank by market value, said it would post a decline of about 60 percent in third-quarter net income on turmoil in the subprime and leveraged loan markets as well as weakness in its consumer business.
European credit spreads widened as the losses underlined concerns about tight credit markets after short-term lending rates jumped on Friday, dashing hopes from earlier last week that credit conditions were easing.
It definitely fuels ongoing worries on the markets. Credit spreads are widening again and the interbank (lending) market remains very tense, said Valerie Plagnol, chief strategist at CM-CIC Securities in Paris.
London interbank offered rates for three-month euro deposits extended recent gains to a new six-year high.
In a speech at the Reuters headquarters in London, Greenspan said the market upheaval stemming from defaults on U.S. home loans to people with poor credit histories was an accident waiting to happen.
But he noted that U.S. high-yield bond issuance had started to take off again. Is this August/September credit crisis about to be over? Possibly, he said.
UBS, the world's largest wealth manager, said the 4 billion Swiss francs ($3.42 billion) write-down would result in a third-quarter loss of as much as 800 million Swiss francs ($683 million).
The critical time will be over in the next six months, Chief Executive Marcel Rohner told reporters after UBS shed 1,500 jobs in its investment bank.
Citi said it was taking $1.3 billion in pretax losses on the value of subprime mortgage-backed securities and leveraged loans and another $1.4 billion in pre-tax write-downs on funded and unfunded leveraged loan commitments.
Credit Suisse said its investment banking and asset management results had been hit but gave few further details.
The banking giants are only the latest in a string of global finance houses that have reported damage from a downturn in the U.S. housing market, which has triggered a global credit crunch.
Banks worldwide have clammed up on lending to each other as they strive to calculate exposure to soured loans, forcing the world's major central banks to inject emergency funds into the global financial system to prevent it grinding to a halt.
It's probably safe to say UBS won't be the last bank to announce something like this in the months ahead, but it begs the question as to how long this turmoil will continue, said Eamonn Hughes of Goodbody Stockbrokers.
Sources familiar with the situation told Reuters last week Deutsche Bank profits could be hit by up to 1.7 billion euros ($2.4 billion) due to loans that have dwindled in value as a result of the credit market crisis.
But Sony Corp's financial arm successfully raised 348 billion yen ($3 billion) through an initial public offering on Monday after setting the price at the top end of an indicated range, despite jitters which had cast doubt on the flotation.
In stark contrast, shares in beleaguered British bank Northern Rock fell more than 17 percent on Monday after reports of a sharply discounted sale.
The Sunday Telegraph said the UK Treasury had given two U.S. hedge funds -- JC Flowers and Cerberus -- permission to start takeover talks, sparking fears of a fire sale of its assets that would leave shareholders with virtually nothing.
Last month, thousands of panicked savers queued to get their money out of Britain's fifth-biggest mortgage lender, after it had to seek emergency funding from the Bank of England.
On Monday, British finance minister Alistair Darling said he would beef up a national protection scheme to cover anybody's savings up to 35,000 pounds ($71,080) and in a speech at the Reuters HQ also said the increased limit was only the first step in improving the financial compensation scheme.