Shares in Citigroup fell by 4.3 per cent in early trading in New York today after the world's largest financial institution was forced to restate third-quarter profits and credit crunch fears swept Wall Street.

The bank, which ousted Charles "Chuck" Prince as chairman and chief executive yesterday, said that third-quarter profits would fall by a further 6 per cent, or $166 million (£80 million), after revaluing its portfolio of sub-prime investments.

Citigroup reported a 57 per cent profit drop before this earnings restatement.

The group is now writing off almost $17 billion as a result of the credit crunch.

It had already estimated a near $6 billion write-off, but yesterday disclosed a further $11 billion hit.

The scale of Citigroup’s latest writedown, more than double the previous highest estimate, sent shockwaves across the banking industry as investors braced themselves for further investment losses at rival financial services groups.

Merrill Lynch shares fell by 3.2 per cent in morning trading, Morgan Stanley dropped by 3.6 per cent, Goldman Sachs dropped by 3.4 per cent and Bank of America was down 1.8 per cent.

Citigroup is searching for a chief executive after announcing last night that it would split Mr Prince’s roles.

Robert Rubin, who was US Treasury Secretary in the Clinton Administration, is taking over as chairman, and Sir Win Bischoff, a former Schroders chief executive and European head of Citigroup, will act as interim chief executive.

Meanwhile, in London, Alistair Darling attempted today to distance the UK economy from the deepening US financial problems.

The Chancellor told the BBC Radio 4 programme Today this morning that the British economy was in relatively good health, adding: "The point is that growth will continue and I think that you need to keep this in perspective."

He said: "The fundamental point is that the British economy is strong. It's been growing now for well over ten years.

Times Recommends

• US stocks fall below 9,000 mark
• House price fall smallest in seven months
• Wary investors opt to keep cash in safes