ElCount
07-17-2009, 09:07 AM
JULY 17, 2009, 8:54 A.M. ET
BofA's Net Edges Lower, Citi Swings to Profit
By KERRY GRACE BENN
Bank of America Corp.'s second-quarter income fell 5.5% on higher merger charges and continued credit woes, while Citigroup Inc. swung to a profit, but only because of a gain from splitting off Smith Barney into a joint venture.
Both U.S. banks are still trying to find their footing amid the lingering fallout of the financial meltdown and the global economic downturn that followed. Citigroup, which will soon be 34% owned by the U.S. government, ceded control of Smith Barney to Morgan Stanley to shore up its capital base, while Bank of America rescued Merrill Lynch, inheriting its problems.
Bank of America posted income of $3.22 billion, or 33 cents a share, down from $3.41 billion, or 72 cents a share, a year earlier. The company had 64% more shares outstanding in the most recent period amid its capital-raising efforts. The periods included $829 million and $212 million, respectively, in merger and restructuring charges. In part on those acquisitions, revenue jumped 61% to $32.77 billion.
Analysts polled by Thomson Reuters expected earnings of 28 cents and revenue of $33.1 billion.
The banking giant is considered particularly vulnerable to unemployment, and the condition of its mammoth portfolio of credit-card loans could be a bellwether for the rest of the industry. Net charge-offs on credit cards rose 28% to $2.06 billion.
Bank of America and others have enjoyed a lift from the mini-boom in mortgage financing, and several other banks that have reported this week have also reported strong results in investment banking.
The company said Friday results were also driven by strong revenue in the wholesale capital markets business and in home loans.
Investors are also still hungry for clues about the state of Bank of America's integration of Merrill Lynch, which it said Friday was on track.
Shares were recently down 2 cents at $13.15 in premarket trading. The stock is still off by half in the last year.
The company didn't break out an earnings number for Merrill Lynch on its own, but said it would likely achieve about 40% of its goal of $7 billion in cost savings from the merger this year, compared with its original goal of 25%.
Credit-loss provisions more than doubled from a year earlier, while the net charge-off rate surged to 3.64% from 1.67% a year earlier and 2.85% in the first quarter. Credit-card managed losses increased to 11.7% from 5.96% a year ago, and total nonperforming assets rose to 3.31% from 1.13% in the prior year and 2.64% last quarter.
The company said it extended more than $211 billion in new credit during the period, with $78 billion to commercial non-real-estate intents and another $111 billion for mortgages. Bank of America has said it is beefing up its mortgage operations to meet demand in recent months as rates fell to historic lows. But most mortgage activity industrywide has been for refinancings, not for home purchases.
Bank of America's tangible common equity ratio, which measures how much of a bank's hard assets its common shareholders actually own, rose to 4.7% from 3.2%. Its Tier one capital ratio, a key measure of financial strength, jumped to 12% from 8.3%.
The bank was ordered to raise common-equity ratios by $33.9 billion by the Treasury Department following its stress test of the 19 largest financial institutions by assets. The company has been exchanging preferred stock for common shares and has sold some assets, and has said in recent months it will easily be able to raise the mandated amount. It said Friday it had increased Tier one capital by nearly $40 billion.
Meanwhile, since late April, seven of the company's board members have resigned amid calls for improved corporate governance.
Trading Results Help Citigroup
Citigroup recorded a profit of $4.28 billion on a $6.7 billion gain related to the combination of its Smith Barney brokerage operations with those of Morgan Stanley.
The profit also reflected a strong performance from its trading businesses, echoing results from other firms with big Wall Street operations. Meanwhile, deposits rose 6% during the quarter and operating costs dropped 21% as Citigroup continues to streamline its operations long criticized as bloated. Headcount fell 30,000, or 9.7%, during the quarter.
The bank is still roiling from its mortgage-related securities and the credit crisis. Investors had started to believe the worst was over as losses narrowed last year and the company posted its first profit in 18 months in the first quarter. But woes at Citgroup, which was a leader in creating and marketing some of the exotic securities that have been at the heart of the credit crunch, appear to be far from over.
Investors are getting their first look at the future shape of Citi, which recently segregated its worst assets and units into subsidiary Citi Holdings. The state of those bad assets will nevertheless be a major factor in coming quarters, as they will continue to impact the troubled bank's bottom line.
Shares were recently up 3 cents at $3.06 in premarket trading. The stock is off 55% so far this year and 83% in the last 12 months.
The company's quarterly profit of $4.28 billion, or 49 cents a share, compared with a year-earlier loss of $2.5 billion, or 55 cents a share. Revenue jumped 71% to $29.97 billion, driven by the Smith Barney gain. Analysts' estimates didn't include the gain, and Citigroup didn't provide results excluding it.
Citicorp, the retail banking and commercial and investment banking business, saw revenue fall 11% to $14.96 billion and posted an 11% drop in profit to $3.06 billion. The company said results were hurt by the impact of foreign-currency translation and greater credit losses in North America. Investment-banking revenue fell 13% as the company said the prior year was driven by stronger merger-and-acquisition and equity volume.
Citi Holdings includes the consumer-finance brands that don't generate deposits such as CitiFinancial, Primerica and CitiMortgage, along with "toxic" loans and securities. It saw results soar amid the Smith Barney gain.
Last week, Citi released historical financial data to show investors how the separation would play out. At first sight, the numbers show why Citi decided to separate the businesses it considers core from those it wants to sell or shrink. But looking back at the results since the first quarter of 2007, the core businesses have been profitable but their results have been strikingly volatile, especially in investment banking.
Write to Kerry Grace Benn at kerry.grace@dowjones.com
http://online.wsj.com/article/SB124782317374657261.html#mod=testMod
BofA's Net Edges Lower, Citi Swings to Profit
By KERRY GRACE BENN
Bank of America Corp.'s second-quarter income fell 5.5% on higher merger charges and continued credit woes, while Citigroup Inc. swung to a profit, but only because of a gain from splitting off Smith Barney into a joint venture.
Both U.S. banks are still trying to find their footing amid the lingering fallout of the financial meltdown and the global economic downturn that followed. Citigroup, which will soon be 34% owned by the U.S. government, ceded control of Smith Barney to Morgan Stanley to shore up its capital base, while Bank of America rescued Merrill Lynch, inheriting its problems.
Bank of America posted income of $3.22 billion, or 33 cents a share, down from $3.41 billion, or 72 cents a share, a year earlier. The company had 64% more shares outstanding in the most recent period amid its capital-raising efforts. The periods included $829 million and $212 million, respectively, in merger and restructuring charges. In part on those acquisitions, revenue jumped 61% to $32.77 billion.
Analysts polled by Thomson Reuters expected earnings of 28 cents and revenue of $33.1 billion.
The banking giant is considered particularly vulnerable to unemployment, and the condition of its mammoth portfolio of credit-card loans could be a bellwether for the rest of the industry. Net charge-offs on credit cards rose 28% to $2.06 billion.
Bank of America and others have enjoyed a lift from the mini-boom in mortgage financing, and several other banks that have reported this week have also reported strong results in investment banking.
The company said Friday results were also driven by strong revenue in the wholesale capital markets business and in home loans.
Investors are also still hungry for clues about the state of Bank of America's integration of Merrill Lynch, which it said Friday was on track.
Shares were recently down 2 cents at $13.15 in premarket trading. The stock is still off by half in the last year.
The company didn't break out an earnings number for Merrill Lynch on its own, but said it would likely achieve about 40% of its goal of $7 billion in cost savings from the merger this year, compared with its original goal of 25%.
Credit-loss provisions more than doubled from a year earlier, while the net charge-off rate surged to 3.64% from 1.67% a year earlier and 2.85% in the first quarter. Credit-card managed losses increased to 11.7% from 5.96% a year ago, and total nonperforming assets rose to 3.31% from 1.13% in the prior year and 2.64% last quarter.
The company said it extended more than $211 billion in new credit during the period, with $78 billion to commercial non-real-estate intents and another $111 billion for mortgages. Bank of America has said it is beefing up its mortgage operations to meet demand in recent months as rates fell to historic lows. But most mortgage activity industrywide has been for refinancings, not for home purchases.
Bank of America's tangible common equity ratio, which measures how much of a bank's hard assets its common shareholders actually own, rose to 4.7% from 3.2%. Its Tier one capital ratio, a key measure of financial strength, jumped to 12% from 8.3%.
The bank was ordered to raise common-equity ratios by $33.9 billion by the Treasury Department following its stress test of the 19 largest financial institutions by assets. The company has been exchanging preferred stock for common shares and has sold some assets, and has said in recent months it will easily be able to raise the mandated amount. It said Friday it had increased Tier one capital by nearly $40 billion.
Meanwhile, since late April, seven of the company's board members have resigned amid calls for improved corporate governance.
Trading Results Help Citigroup
Citigroup recorded a profit of $4.28 billion on a $6.7 billion gain related to the combination of its Smith Barney brokerage operations with those of Morgan Stanley.
The profit also reflected a strong performance from its trading businesses, echoing results from other firms with big Wall Street operations. Meanwhile, deposits rose 6% during the quarter and operating costs dropped 21% as Citigroup continues to streamline its operations long criticized as bloated. Headcount fell 30,000, or 9.7%, during the quarter.
The bank is still roiling from its mortgage-related securities and the credit crisis. Investors had started to believe the worst was over as losses narrowed last year and the company posted its first profit in 18 months in the first quarter. But woes at Citgroup, which was a leader in creating and marketing some of the exotic securities that have been at the heart of the credit crunch, appear to be far from over.
Investors are getting their first look at the future shape of Citi, which recently segregated its worst assets and units into subsidiary Citi Holdings. The state of those bad assets will nevertheless be a major factor in coming quarters, as they will continue to impact the troubled bank's bottom line.
Shares were recently up 3 cents at $3.06 in premarket trading. The stock is off 55% so far this year and 83% in the last 12 months.
The company's quarterly profit of $4.28 billion, or 49 cents a share, compared with a year-earlier loss of $2.5 billion, or 55 cents a share. Revenue jumped 71% to $29.97 billion, driven by the Smith Barney gain. Analysts' estimates didn't include the gain, and Citigroup didn't provide results excluding it.
Citicorp, the retail banking and commercial and investment banking business, saw revenue fall 11% to $14.96 billion and posted an 11% drop in profit to $3.06 billion. The company said results were hurt by the impact of foreign-currency translation and greater credit losses in North America. Investment-banking revenue fell 13% as the company said the prior year was driven by stronger merger-and-acquisition and equity volume.
Citi Holdings includes the consumer-finance brands that don't generate deposits such as CitiFinancial, Primerica and CitiMortgage, along with "toxic" loans and securities. It saw results soar amid the Smith Barney gain.
Last week, Citi released historical financial data to show investors how the separation would play out. At first sight, the numbers show why Citi decided to separate the businesses it considers core from those it wants to sell or shrink. But looking back at the results since the first quarter of 2007, the core businesses have been profitable but their results have been strikingly volatile, especially in investment banking.
Write to Kerry Grace Benn at kerry.grace@dowjones.com
http://online.wsj.com/article/SB124782317374657261.html#mod=testMod