Oct. 16 (Bloomberg) -- Citigroup Inc. and Merrill Lynch & Co. reported almost $8 billion of losses in the third quarter as their top executives said the economic contraction will shred profit into 2009.

Citigroup, the second-biggest U.S. bank by assets, lost $2.8 billion on at least $13.2 billion of loan losses and securities writedowns. Merrill, forced to sell itself to Bank of America Corp. as markets slid, had a $5.15 billion loss on writedowns of $13.5 billion.

Merrill Chief Executive Officer John Thain and Citigroup Chief Financial Officer Gary Crittenden signaled more pain ahead as Americans fall behind on their bills. They joined CIT Group Inc. CEO Jeffrey Peek and JPMorgan Chase & Co. CEO Jamie Dimon in saying the slowdown will last longer and strike deeper than many had previously expected.

``We are beginning to see a significant contraction in economic activity in the United States that will also impact economic growth around the world,'' Thain said on a conference call with analysts. ``The real question is not whether or not we're in a recession, but the real question will be how deep and how long.''

Thain, who agreed to sell the firm after a crisis of confidence in Wall Street forced Lehman Brothers Holdings Inc. into bankruptcy, had revenue of $16 million in the quarter -- a fraction of the $380 million the firm generated a year earlier.

Credit Cards

At Citigroup, North American credit-card loan chargeoffs climbed by $311 million, reflecting slower payment rates, higher bankruptcies, rising unemployment and lower recoveries on bad debt, Crittenden said on a conference call. The New York-based bank added $481 million to its credit-card loan-loss reserves.

``Credit-card losses may continue to rise well into 2009,'' Crittenden said in an interview. Citigroup still intends to cut its dividend in half to 16 cents from 32 cents, he said.

The losses, writedowns and pessimistic assessments for next year provide more evidence that the effects of a credit crisis that brought down Lehman and Bear Stearns Cos. have spread throughout the broader economy. Peek's CIT, a century-old commercial lender, repaid bank loans early this year to assure investors it's solvent and said today it lost $297 million in the quarter.

``If you're not fearful, you're crazy,'' JPMorgan's Dimon said yesterday, after his New York-based bank's profit slid 84 percent to $557 million. ``We have to be prepared that it gets a lot worse.''

Pandit's Missed Opportunity

Citigroup CEO Vikram Pandit failed to return his bank to profitability after more than $70 billion of writedowns and loan losses triggered by the slumping housing market. He was thwarted in his effort this month to buy Charlotte, North Carolina-based Wachovia Corp. and gain almost $450 billion of deposits after Wells Fargo & Co. made a higher bid.

Pandit's results included $608 million of profit from discontinued operations, primarily related to the pending sale of Citigroup's German retail-banking business. Excluding that gain, the loss was 71 cents a share, matching an estimate of 15 analysts surveyed by Bloomberg.

``There is just no hiding from this relentless downturn in housing and the turmoil in the financial markets,'' said David Dietze, president and chief investment strategist at Point View Financial Services, which manages $100 million, including Citigroup shares, in Summit, New Jersey.

Citigroup fell 33 cents, or 2 percent, to $15.90 in New York Stock Exchange composite trading at 4:15 p.m. The company has lost 46 percent of its market value this year and now ranks fourth by that measure after JPMorgan Chase & Co., Bank of America and Wells Fargo.

Government Push

The U.S. government said earlier this week it will spend $250 billion taking stakes in banks. Citigroup will get $25 billion. As part of the plan, newly issued, senior unsecured debt and non-interest bearing deposits will be guaranteed by the Federal Deposit Insurance Corp.

Thain said today that the government plan will ``unlock'' credit markets. ``You will gradually see credit conditions get better,'' he said.

Merrill has plunged 81 percent in New York trading from a peak of $97.53 at the start of last year. The shares rose 11 cents to $18.35 as of 4 p.m.

Banks and securities firms have reported more than $650 billion in losses, writedowns and credit provisions since the start of 2007 and raised $619 billion in capital to offset those losses, according to data compiled by Bloomberg.

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: October 16, 2008 16:23 EDT