Economies: US bank trends continue

On Friday, FDIC stepped in as receiver for The Columbian (sic) Bank and Trust Company of Topeka, Kansas at the request of the State Bank Commission, rounding off a week when small banks ran into ever deeper trouble and large banks called on their friends to bail them out.

As US shares fell across the board in response to the news that Freddie Mac and Fannie Mae were doomed unless they received money from the taxpayer,

Just before announcing a strategy to address its own problems, Citi warned that it thinks that Kehman Brothers, Goldman Sachs and Morgan Stanley will find the third quarter tougher than previously expected.

Citi last week agreed to buy a USD30 million loan packed from ACCION, a Texas house specialising in loans to small and medium sized enterprises, and mistakenly often referred to as a "microlender." Microloans are generally regarded as loans for just a few hundred USD or equivalent.

Two days later, Citi announced that it was to close a home loans division based in Des Moines, Idaho which would cut 190 jobs.

Earlier in August, the New York Attorney General Andrew Cuomo announced that he intends to issue proceedings against Citi alleging fraud by "falsely representing [auction rate securities] as safe, cash equivalent securities." He also alleges that Citi destroyed evidence following receipt of a subpoena relating to it. The bank acknowledges that the data was destroyed but says that it was an innocent error as the relevant tapes came up for routine re-use before they were taken out of circulation. All recycling of tapes has since been suspended, the bank says.

That action was just two weeks after Cuomo announced action against UBS.

In the next few weeks both Citi and UBS have announced a major restructuring of units, not necessarily to help fight of the actions nor to help raise funds but it is clear that both intend to put problem areas into divisions where, if the strategies are successful, they may be ring-fenced.