Big Banks Announce Writedowns That Swell Total to $120bn

Profits at the US's second and fourth largest banks, Bank of America and Wachovia, have been all but wiped out by the deepening sub-prime crisis with both companies yesterday announcing multibillion-dollar writedowns.

The news came as Ambac Financial, which insured some of the bonds based on sub-prime assets, hoisted the "for sale" sign after announcing its first annual loss in 37 years.

Ambac is one of the monoline insurers that insure the bonds issued by governments and municipal authorities to fund major projects such as hospital and road building. But their more recent move into insuring financial instruments based on sub-prime mortgages has raised fears that they are facing huge claims.

Last week Ambac's chief executive left the business after it was forced to pull a $1bn emergency fund raising at the last minute. Ratings agency Fitch sent the stock into a tailspin by downgrading its view of the company's creditworthiness.

Moody's Investors Service and Standard & Poor's are reviewing their ratings. But Standard & Poor's yesterday downgraded its ratings on some of the European instruments insured by Ambac, including bonds issued by the London Underground contractor Tube Lines.

Announcing an annual loss of $3.2bn (£1.63bn), as a result of a $5.2bn writedown yesterday, the company admitted it was exploring "strategic alternatives" to bolster its finances. Analysts took the comment to mean Ambac is up for sale.

Bank of America announced a 95% drop in fourth-quarter profits to $268m after writing $5.3bn off the value of its assets. Over the last three months of the year the US's second largest bank reported trading account losses of $5.44bn. It was "easily the toughest environment since I have been chief executive", said Kenneth Lewis, who took over in 2001.

Wachovia announced fourth-quarter profits of $51m, down 98% on the same period the previous year. It reported a $1.7bn loss on financial products, including sub-prime mortgage investments.

The results follow news this month from market leader Citigroup of an $18bn write-off, leading to the biggest loss in the firm's 196-year history. All told, the world's big banks and broking houses have written off an estimated $120bn since the summer.