Citigroup (NYSE: C) recently increased the size of its European distressed-debt sourcing unit as crisis-hit lenders seek to cut their balance sheets.

Simon Boughey, a London-based spokesman for the New York based bank stated that the bank now now has six people working on finding troubled assets from other banks in Europe, including two people dedicated exclusively to this task. This compares to just one person a month ago. Conor Davis, head of credit sales for Europe commented “The team will focus on aiding our banking clients as they continue the process of deleveraging.”

The third-largest U.S. bank by assets is jumping at the opportunity. The Washington based International Monetary Fund said in a report earlier this year that European banks may need to reduce their balance sheets by as much as $3.8 trillion through asset sales and reduced lending to meet tougher capital requirements. Disposals will include about 500 billion euros ($644 billion) of loan portfolios in the next five to 10 years, Moody’s Investors Service said on Aug. 8. Funds investing in distressed assets earned a 5.2 percent return this year, after losing 6.2 percent in 2011, according to an index compiled by by hedge fund advisory firm Hennessee Group LLC.

With the world’s central banks pumping more and more liquidity into financial markets, yields on debts have fallen across the globe. This decreased attractiveness of fixed income debt may also be a factor driving the Dow Jones Industrial Average to record highs, despite weak economic data. Investors may remain leery of stocks due to the volatility we’ve seen since 2008, which could drive investors back to the bond market. With the flight to quality pushing yields down for US and German debt, distressed debt may once again become attractive, and lucrative.