Just when some analysts were starting to call the bottom of the US subprime induced slump in banking and housing, along comes more gloom with some bearish forecasts on big banks, Citigroup and UBS, while the Northern Rock rescue in the UK looks to be in trouble.

The British stockmarket fell 170 points, its biggest fall since August, on the news that Northern Rock’s 25 billion pound ($US51 billion) loan from the Bank of England won’t be extended indefinitely, a measure that may affect any bid for the bank.

The majority of the eight groups considering buying the group want the loans from the Bank of England to be extended indefinitely to support Northern Rock when ownership changes. But the UK Treasury said in a statement overnight that: “Interested parties should not assume at this stage that the current Bank of England loan facilities will be available beyond either any sale or the expiry of the facilities in February. However, the authorities are willing to discuss any proposals made.”

The Treasury said that bids for Northern Rock that require public money “will be evaluated on its merits against the authorities’ stated objectives.”

The bank said in a separate statement that all the proposals it has received were “materially below the market price at the close of business” last Friday and “the value to shareholders from any of the proposals remains highly uncertain.” That means the possible buyers are trying to grab the bank on the cheap and also being bold enough to ask for a subsidised loan from the Government.

The $US51 billion advanced to support Northern Rock is now in excess of Britain’s defence spending over the past year.

US homebuilder confidence remains at record lows and America’s second biggest hardware group, Loewes, cut earnings forecast and talked gloomily about the absence of any recovery hints well into 2008.

That sent investors heading for the safety of the US Government bond market were the yield on 10 year securities fell to 4.06%, a new two year low, while the yield on two year bonds also fell to new 24 month lows.

And Goldman Sachs analyst, Bill Tanona, downgraded Citigroup to a “sell” and forecast write-downs on subprime mortgage associated credit derivatives of up to $US15 billion over the next six months.

He wrote: “Given the dislocations in the credit markets, we have become more pessimistic. Citigroup will likely face an increasingly challenging operating environment which is likely to pressure results in many of their businesses.”

According to the Goldman research, Citigroup’s CDOs account for 25% of book value and 50% of tangible book value, compared with 20% for both those measures at Lehman Brothers, Bear Stearns, JPMorgan, and Morgan Stanley. Tanona also said the bank’s retail banking and credit card business may suffer as consumer-credit conditions worsen, and it may also be hurt by the growing reluctance of investors to buy paper issued by so-called Structured Investment Vehicles (SIVs) of which Citigroup is a major funder.

Citigroup shares slumped by around 5% to just over $US32, a fall of 42% so far this year. A month ago it was trading above $US37.

In London, CreditSights Inc., an independent research firm, warned that Swiss-based UBS may have “substantial” losses on $US20 billion of collateralized debt obligations (CDOs) with the highest ratings. UBS is Europe’s biggest bank by assets, and CreditSights said the write-downs could be as much as another $US9 billion.

In contrast, Citigroup analyst Tobias Lekovich is offering a bit of sunshine about banks. He recommended that investors buy US banks saying he had raised his rating on the companies to “overweight” from “market weight” because of “compelling valuation, depressed earnings revision data and awful investor sentiment.”

“The banks group has taken some sharp hits due to the subprime woes, and there appears to now be a pile-on effect that seems to be overdone,” Levkovich wrote in a note dated last Friday.

But the most concerning news came from the pillar of financial rectitude, Swiss Reinsurance, the world’s biggest reinsurer.

It shocked European markets by revealing that it had taken a write down in the value of a deal of 1.2 billion Swiss francs (or $US1.07 billion) related to two credit default swaps.

The firm, which is very conservative, as re-insurers should be, surprised by saying the huge loss was from credit default swaps designed to provide protection for a client against a fall in the value of a portfolio of mortgage related securities.

The portfolios “consist largely of mortgage-backed securities,” Swiss Re said in a statement. The “majority of the exposure” was to prime and mid-prime securities. There is “exposure to subprime and asset-backed securities in the form of collateralised debt obligations.”

Swiss Re said it cut the value of Asset backed Collateralised Debt Obligations in the insured portfolio to zero and the subprime securities to 62% of their face value, moves that if followed by other investors and funders of these securities, would bring big losses and validate many of the gloomier projections of losses totalling in the hundreds of billions of US dollars for the finance and banking sectors.

And in a worry from China, not only has the country’s banking regulator started guiding the lending limits of individual banks, but there are now estimates that the third biggest, Bank of China, may have to set aside ($US1 billion) in provisions for US subprime investments in the fourth quarter.

According to the Core Pacific-Yamaichi International securities firm research in Hong Kong, Bank of China may have to triple subprime charges to $US1.6 billion for the full year from around $US500 million in the first three quarters.

Bank of China held $US7.45 billion in subprime asset-backed securities and $US496 million in collateralized debt obligations at the end of September. That’s a small proportion of its assets and capital but the impact of the set asides has so far seen its profit growth halved compared to larger rivals this year.

Meanwhile, copper once again made a mockery of those analysts who were calling the bottom of the market for this increasingly volatile metal. Gold and silver also fell while oil edged a touch higher.

Copper fell to its lowest level since late March on yet another rise in stocks, as monitored by the London Metal Exchange. They hit a seven month high in a repeat of this time last year when prices tumbled as Chinese buying slowed sharply.

This time its a combination of slowing demand from China and a sharp fall in the US as housing tanks (the housing market is the biggest consumer of copper in the US). Stocks have risen more than 8% so far in November and metal prices have tumbled 13%.