Two of the world's largest banks jolted financial markets yesterday as JP Morgan's chief executive warned that November and December had been "terrible" months for the Wall Street bank, while Bank of America, which is buying Merrill Lynch, announced staff layoffs of up to 35,000 jobs.

BoA said it plans to cut 30,000 to 35,000 jobs over the next three years after $50 billion takeover of Merrill Lynch and because of the weak economic environment. The approximately 10 per cent reductions are coming from both companies and will affect all lines of business and staff units, the bank said in a statement. 

The bank says it continues to do business actively with all of its client segments and to benefit from a flight to safety, attracting deposits and new client relationships. In addition, the company continues to “actively originate loans through all of its credit product lines.”

"The reductions are coming from both companies and affect all lines of business and staff units. Details as to specific reductions in communities or by business line have not been determined. As many reductions as possible will be made through attrition. Severance and other benefits will be provided for those associates whose jobs are eliminated and who cannot be offered another position," the bank said.

Meanwhile, Jamie Dimon, JP Morgan Chase chief executive, set off a fall in financial shares yesterday when he told CNBC that November and December had made for a difficult quarter at the bank, adding that the company was prepared to face a similarly tough environment in 2009.

Mr Dimon said: “It’s all going to be unemployment-driven. Unemployment will drive commercial losses, real estate losses, all consumer products’ losses.”

Asked whether he saw any end to the macro-economic troubles afflicting the US, he said: “If we are lucky, we will have two more quarters of this and we will start to see a recovery.... It’s possible it’s going to get worse and we’re in for a tougher time.”