We are watching one of the most dramatic business sagas the world has ever seen being played out before our eyes.

America’s two biggest banks, Bank of America and Citibank, are engaged in a titanic struggle to avoid nationalisation and the scenarios I outlined yesterday.

When a company is in trouble directors can play games to buy time and hope the difficulty passes or confess the whole problem and try and enlist all the parties to find a solution.

Citibank and Bank of America appear to be adopting the first and most dangerous strategy. Bank of America last night declared that it’s “not in, and does not expect to enter, talks about new capital or converting preferred stock to common stock.

“We are in very healthy shape, we have strong capital, we have the strongest liquidity in the industry, we are profitable and we are lending across business lines.”

For the moment the US sharemarket believed Bank of America and the stock rose above $4 — its year high is $43.46.

Back here in Australia I am in no position to say whether Bank of America is telling lies, whether it is telling the truth or whether it simply does not know what its position is.

But if today’s statement is true then Bank of America will survive. But if it turns out to be a lie or ignorant of the facts then you will see Bank of America stock plunge to new lows and nationalisation – or nationalisation using a different name – will be the only alternative.

Citibank is more up front with its problems but is trying to convince US government to convert its preferred stock to ordinary stock at a price that is substantially above the value that Wall Street has placed on it.

That way the government stake would stay below 50%. It would be a dreadful and totally uncommercial deal for the government. If President Obama agrees to it, he will destroy a lot of his political capital.

There is more to come and a similar drama is unfolding in the UK and Europe.