Citi and Merrill Lynch – the latter now part of Bank of America – both said they made a loss in the third quarter and reported falls in the earnings at their large wealth management operations.

Citi, which recently lost a merger battle to buy Wachovia, said its earnings fell into the red in the third quarter of 2008, posting a loss of $2.82 billion, contrasting with a profit of $2.2 billion a year ago. Revenue and earnings for its wealth management arm also fell over the past 12 months.

Meanwhile, the once-proud US investment titan, Merrill Lynch, also reported a heavy quarterly loss and a drop in the earnings for its wealth management arm. It made a net loss of $5.1 billion in the third quarter, compared with a loss of $2.4 billion a year before.

In a statement, Citi said it suffered total losses stemming from the credit crunch of $13.2 billion. Citi recently lost a M&A tussle with Wells Fargo – which issued its results a day before – to buy Wachovia, the US bank. Citi, like a raft of other financial institutions, has suffered heavy losses from the financial turmoil.

At the global wealth management arm of the bank, Citi said Q3 revenues dropped by 10 per cent on the year before to $3.2 billion and net income tumbled by 26 per cent to $363 million.

Within the regional components of Citi’s GWM arm, the biggest drop in revenues was experienced in Asia, with a drop of 27 per cent to $608 million, and net income dropped by 58 per cent on the year before to $59 million.

The firm has cut costs: total expenses fell by $1.2 billion from the second quarter of this year. In the first nine months of the year, total headcount has shrunk dramatically – a drop of 23,000.

As at the end of the quarter, Citi said it maintained its capital strength with a Tier 1 capital ratio of 8.2 per cent.

“Our capital will be further strengthened with the sale of our Germany retail banking operations in the fourth quarter, continued focus on reducing our legacy assets, as well as the latest steps taken by the US Department of the Treasury,” Vikram Pandit, chief executive said, referring to recent moves by the US government to help recapitalise US banks. Revenues for the bank as a whole were $16.7 billion, a drop of 23 per cent.

At Merrill Lynch, meanwhile, the firm said it made a net loss of $5.1 billion in the third quarter, compared with a loss of $2.4 billion a year before.

The Wall Street-listed company, one of the highest-profile casualties of the credit crunch, also suffered revenue declines at its wealth management operation. Revenues dropped by 9 per cent to $3.2 billion from a year before. The GWM pre-tax profit margin was 23.9 per cent compared with 26.9 per cent in the third quarter of 2007. GWM pre-tax earnings were $2.2 billion, a year-on-year fall of 18 per cent.

The fall in revenues was caused by fewer transactions and less client activity, Merrill Lynch said in a statement.

Meanwhile, among its Global Private Client arm, Merrill said net revenues for the third quarter were $3.0 billion, a fall of 8 per cent over the past 12 months.

At the end of the quarter, Merrill Lynch employed a total of 16,850 financial advisors, a rise of 240 advisors on a year before. That headcount compares with a total Merrill Lynch headcount of 60,900, which has fallen by 3,300.

The firm said financial advisor retention, particularly among its first and second quintile FAs, outperforms the industry average. Meanwhile, among its international business, headcount rose by 8 per cent over a year before.

GWM oversaw a total of $1.5 trillion of client assets at the end of the quarter.

The firm booked net write-downs of $5.7 billion, stemming from the previously announced sale of asset backed collateralised debt obligations. It also recorded net losses of $3.8 billion resulting from real estate, losses incurred by broker dealers and other “severe market dislocations” in September. On the plus side, it booked a $4.3 billion in net pre-tax gains from its sale – also previously announced – of its 20 per cent stake in the US news vendor Bloomberg. When all these items are excluded, Merrill Lynch’s overall net revenues fell by 31 per cent to $5.7 billion on a comparable basis.