Coming up: a nervous weekend

Buckle up - there is more trouble for the giants of the US banking system, with strains threatening to unravel some high profile deals - deals that were have supposed to have 'saved' some institutions. Worries grew that banks are ill-prepared to handle mounting credit losses in the deepening recession. Shares in Bank of America dropped after sought it cash from regulators, and fears about Citigroup's future sent its shares crashing. In fact, it has emerged that Bank of America bosses were livid after uncovering heavy losses at Merrill Lynch as it prepared to complete its purchase of that icon Wall Street bank, the Financial Times reported without saying where it got the information. Meanwhile European banks hoarded cash while deepening gloom surrounding the global economy and financial system pushed US interest rate swap spreads wider. The US two-year interest rate swap spread - a gauge of investors risk aversion - widened beyond 61 basis points, re-testing its widest levels in a week. All this turmoil makes it just that much harder for our banks to roll over their wholesale borrowing, and will cost them higher spreads. Hopefully, the wholesale guarantees put in place before Christmas will make it slightly 'easier' for these necessary deals to be done. But they will still likely come at a cost we will pay at the retail level.