The losses were prompting the company to raise additional capital from an outside investor, the newspaper said in a report on its Web site. Merrill is expected to disclose the huge write-down when it reports earnings next week, the New York Times said, citing people who had been briefed on the company's plans.
Citigroup could get as much as $10 billion, likely all from foreign governments, while Merrill is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund, the report said.
The report also said Citigroup's board is expected to discuss cutting the firm's dividend in half, a move that could save it more than $5 billion a year.
Representatives were not immediately available for comment at either bank.
Panelists surveyed by the Blue Chip Economic Indicators newsletter have the odds of a recession in the next year at 38 percent, a little weaker than the 39 percent odds forecast a month ago.
But the most recent survey was taken ahead of December's grim unemployment report and the newsletter stated that growth forecasts would have been weaker if taken after release of that data.
"The January 4th news of the first decline in private sector nonfarm payrolls since July 2003 and whopping 0.3 of a percentage point jump in the unemployment rate during December no doubt caused some of our panelists to further trim their forecasts of economic growth this year and heightened speculation about the possibility of a recession," the newsletter stated.
"Whether or not the economy is already in a recession, about to enter one, or manages to muddle through without one, will only be known in the fullness of time," the newsletter wrote.
Moody's said it may lower Freddie Mac's financial strength rating from A-, the second-highest grade. The McLean, Virginia- based company's top Aaa senior long-term debt rating and the Prime-1 rating for its commercial paper or short-term IOUs won't be cut, Moody's said.
Chief Executive Officer Richard Syron has attempted to shore up Freddie Mac's finances by selling $6 billion of preferred stock, slicing its dividend in half and reducing its mortgage assets by $30.9 billion to $701.4 billion in the three months to Nov. 30. The government-chartered company may need to take similar steps again, Moody's said.
Freddie Mac ``may experience higher credit losses than Moody's previous expectations,'' Moody's analysts led by Brian L. Harris in New York said in the report late yesterday. ``In its review, Moody's will focus on Freddie Mac's asset quality and the potential that the company may experience an elevated level of credit charges over the near to medium term.''
Freddie Mac, which owns or guarantees one in five U.S. home loans, and larger competitor Fannie Mae are suffering as the worst U.S. housing slump in 27 years increases defaults. More than 100 mortgage lenders were shut, scaled back or sold last year as U.S. home foreclosures rose to the highest on record.
`Credit Stress'
``People may regard the financial strength rating as a signal as to whether the agency is becoming more or less positive on a particular institution, and that may feed through to the debt rating,'' said Simon Adamson, a financial services analyst at CreditSights Inc. in London.
Any downgrade to Freddie Mac's financial strength rating is unlikely to be severe enough to result in a cut to its senior debt ranking, Moody's said.
U.S. home prices may fall 12 percent from their peak through 2010 in ``the toughest housing correction in our lifetimes,'' Fannie Mae Chief Executive Officer Daniel Mudd said this week.
``Credit stress is most likely to occur in the company's guarantee portfolio,'' Moody's said.
Capital One, the largest independent U.S. credit-card issuer, dropped after saying 2007 profit missed its October projection by about 20 percent. Citigroup Inc., Morgan Stanley and Merrill Lynch & Co. slipped after Goldman predicted a U.S. recession this year will hurt earnings at financial companies. Exxon Mobil Corp., the nation's largest energy company, declined as oil retreated for the fifth time in six days.
Standard and Poor's 500 Index futures expiring in March lost 5.8 to 1,405.8 as of 9:06 a.m. in New York. Dow Jones Industrial Average futures decreased 40 to 12,705. Nasdaq-100 Index futures fell 13 to 1,954.5.
``The worry is that current earnings estimates are far too optimistic and need to be cut aggressively,'' said Chirin Gill, who helps manage the equivalent of $3 billion at Daiwa SB Investments in London.
Fourth-quarter profit at S&P 500 companies probably fell 8.1 percent from a year ago, the biggest drop since 2001, according to analysts' estimates compiled by Bloomberg. Earnings at financial companies probably declined 63 percent, the only drop among 10 industries.
Platinum also set a lifetime high on positive fundamentals and tracking gold's rally. Silver touched two-month highs and was not far from its highest level in 27 years.
Spot gold jumped to $891.40 an ounce, surpassing the previous record of $881.10 reached on Tuesday. It was quoted at $883.60/884.40 at 1241 GMT, compared with $878.10/878.90 in New York late on Tuesday.
Bonds of China's Agile Property Holdings Ltd. yield 7.17 percentage points more than U.S. Treasuries, double the premium in July and 1.79 percentage points more than the debt of Los Angeles-based KB Home, which has the same credit ratings. Agile, a housing developer in the southern province of Guangdong, and Country Garden Holdings Co., China's most-profitable builder, canceled debt sales in November when borrowing costs climbed.
