Citigroup splits in two, BofA gets government aid

By Jonathan Stempel and Dan Wilchins

NEW YORK (Reuters) - Citigroup Inc plans to split into two units and Bank of America Corp took $20 billion in government aid after the two banks suffered huge quarterly losses from the worsening credit crisis.

The world's major banks continued to strain under the global economic crisis, with British lender Barclays Plc shares sliding on concerns it might not have enough capital to cope with writedowns.

On Thursday, Ireland nationalized Anglo Irish Bank, a former poster child for the country's "Celtic Tiger" boom.

Barclays' shares recovered some of their losses after the bank said late on Friday that it expected full-year pretax profit to exceed analysts' average forecast.

After losing more than $28.5 billion in the last 15 months, including $8.29 billion in the fourth quarter, Citigroup said on Friday it would divide itself into one business focused on commercial and retail banking, and another on brokerage, retail asset management, consumer finance and troubled assets.

Bank of America obtained a second capital infusion from the U.S. government, which agreed to limit potential losses on $118 billion in troubled assets. The bank added much of these assets when it bought Merrill Lynch & Co on January 1. Bank of America also reported a $1.79 billion fourth-quarter loss and slashed its quarterly dividend to a penny per share from 32 cents.

"It doesn't give you a warm and comfortable feeling that we have bottomed from the banking standpoint," said Walter Todd, a portfolio manager at Greenwood Capital Associates in Greenwood, South Carolina.

Shares of several major U.S. lenders fell, with Bank of America hitting its lowest level since 1991. Moody's Investors Service said it had cut Bank of America's credit ratings and separately said it was mulling a cut in Citigroup's.

Separately, powerful bond investor Bill Gross of Pacific Investment Management Co said in an interview with Reuters that banks' balance sheets may have already suffered the worst of the harm from the credit crisis.

Also on Friday, Bank regulators closed Illinois-based National Bank of Commerce, the first U.S. bank to fail in 2009.

$90 BILLION INJECTIONS

Bank of America and Citigroup face mounting pressure over how well they will absorb a surge in soured loans.

The largest and third-largest U.S. banks by assets have now each taken $45 billion from the government's taxpayer-funded $700 billion Troubled Asset Relief Program (TARP).

"Everyone out there believes that the government will not let these banks fail," said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. "I still don't know how we're going to pay for all of this."

Half of the TARP funds have been committed, and the U.S. Senate voted on Thursday to let President-elect Barack Obama tap the rest.