Wachovia hit by BOLI outbreak

A profit-making scheme from US investment bank Wachovia has backfired due to the credit crunch, Bloomberg reports.

The firm had attempted to raise revenue by taking out life insurance on employees and investing the premiums in hedge funds.

However, the bank-owned life insurance (BOLI) investments put into Citigroup's Falcon Securities fund lost $315 million in the past quarter due to volatile markets affected by the credit crisis.

Speaking to the news agency, Adam Savett at RiskMetrics Group said that the losses represent just the "tippy-top of the iceberg" of the BOLI fallout.

Elsewhere, Fifth Third Bancorp has filed suit against Citi for its own $323 million BOLI losses - having invested in the same hedge fund as Wachovia.

According to figures from Michael White Associates, total BOLI holdings of US banks came to $120 billion by the end of 2007.