Citigroup predicts profit cut at Bank of America

Citigroup today slashed its profit forecast for rival Bank of America as it predicted much greater than expected losses on toxic assets.

Citigroup said Merrill Lynch, which Bank of America rescued late last year, could show second-quarter losses of as much as $2 billion (£1.21 billion) as it is forced to mark down values of its debt.

Earnings will dive according to Citigroup, which has cut is forecast for annual earnings from 85 cents to just 30 cents. It has also lowered its share price target from $20 to $18.

The downgrade comes after a leading Republican politician last night accused the US Federal Reserve of trying to hide its involvement in the Bank of America takeover of Merrill Lynch as Merrill's financial position worsened rapidly.

Congressman Darrell Issa claimed the Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies".

In the past Fed chairman Ben Bernanke has denied that he or his officials had put any pressure on Bank of America to rescue Merrill Lynch.

But it was claimed today there had been a secret agreement between the regulators and Bank of America that involved the shake-up of key directors.

Democratic congressmen have focused their anger on Bank of America's chief executive Ken Lewis, claiming he misled investors over Merrill's finances at the time of the takeover.