World stock markets fell sharply Thursday amid mounting concerns about the financial health of the global banking system on the news that Bank of America Corp. is looking to tap the U.S. government for more cash.
The FTSE 100 index of leading British shares closed down 59.53 points, or 1.4 percent, at 4,121.11, while Germany's DAX fell 85.62 points, or 1.9 percent, at 4,336.73. France's CAC-40 declined 56.12 points, or 1.8 percent, to 2,994.88.
In the U.S., the Dow Jones industrial average dropped 170.76 points, or 2.1 percent, to 8,029.38, while the broader Standard & Poor's 500 index fell 20.86 points, or 2.5 percent, to 821.76.
The losses in the U.S. were led by Bank of America and Citigroup Inc., which saw their share prices plunge 20 percent and 19 percent to multi-year lows as investors grew increasingly worried about their ability to see through the difficult times ahead.
"The banks need more capital now and until that happens things are not going to improve," said David Buik of BGC Partners in London.
Concerns about Bank of America's funding difficulties emerged with the news that the U.S. government is considering a fresh multibillion-dollar aid package to help the bank absorb losses at Merrill Lynch, according to a person with knowledge of the discussions, who spoke to the Associated Press on condition of anonymity because of the sensitive nature of the discussions.
The person said the new aid package could be modeled along the lines of the financial lifeline that was thrown to Citigroup in November.
Citigroup itself is expected to unveil restructuring plans alongside another multi-billion dollar loss for the fourth quarter Friday, a week earlier than planned.
It wasn't all bad news among the big U.S. banks though as JP Morgan Chase & Co unveiled better than expected fourth quarter earnings, helping the company's share price to post modest gains. The company said it earned $702 million, or 7 cents per share, in the October-December quarter. Analysts had expected the company to only break even.
The problems facing Bank of America and Citigroup come in a bad week for the banking industry, which has stoked market concerns that lenders around the world will be forced to raise billions more in capital to weather ever-bigger losses in the current economic climate.
Earlier this week, Citigroup itself confirmed it is to merge its Smith Barney brokerage into a joint venture with Morgan Stanley, relinquishing control in exchange for $2.7 billion in badly needed cash, while Germany's biggest bank Deutsche Bank AG unveiled a massive