Ailing US banking giant Citigroup today unveiled a worse than expected $8.29 billion (£5.5 billion) loss for the fourth quarter amid speculation the US government could be forced to undertake full-scale nationalisation.

Chief executive Vikram Pandit announced an urgent plan to split the bank in two as full-year results showed Citigroup lost $18.72 billion. The firm has lost money for five consecutive quarters.

Pandit sounded a cautious note of optimism as he forecast “reduced volatility” in 2009.

Citigroup's investment banking division (known as the Institutional Clients Group) performed worst with a $9.45 billion net loss for the quarter because of massive new writedowns on bad loans and investments.

Global credit cards and consumer banking also racked up hefty losses. The only area of Citi's global business to turn a small net profit in the fourth quarter was wealth management with $29 million.

Pandit has already indicated he won't take a bonus and warned staff that their bonus pool would be “dramatically lower”. It is understood that many Citi bankers will receive no bonus at all this year.

Citigroup, which also owns British credit card firm Egg, employs around 10,000 people in the UK. One banker said the atmosphere inside its Canary Wharf HQ today was grim: “There is going to be a bloodbath.”

Non-executive director Richard Parsons has said there will be a boardroom shake-up.

Citi said it axed 29,000 jobs in the last quarter globally and further deep cuts are now expected.

Under Pandit's plans, Citigroup will keep its core businesses in a new entity, called Citicorp, while “non core” parts of the empire including toxic assets will be moved into Citi Holdings.

Earlier this week Citigroup handed control of its brokerage Smith Barney to rival Morgan Stanley.

Todd Colvin of broker MF Global said: “They are going to try to home in on what's worth something, and try and sell the pieces they really can't value.”

A spokesman for the bank declined to comment about a further injection of US government funds.

Bank insiders suggested today that full-scale nationalisation is unlikely, but some traders warned it may be the only option.

Manoj Ladwa, derivatives broker at ETX Capital in London, said: “There is only so much money the US government can carry on pumping into US banks. Globally, governments don't have much choice.”

London traders were today avoiding banking stocks because of the uncertainty. With rumours of a merger of French banks, Ladwa added: “It's a case of merge or be nationalised.”