Banks' profits fall
Citigroup, BOA, First Union post lower profits as economy continues to slide
NEW YORK (CNNfn) - Some of the nation's biggest banks reported sharply lower quarterly earnings Monday because risky loans and investment losses bit into profits as the economy continued to slow.|
Citigroup (C: down $0.65 to $46.65, Research, Estimates), the No. 1 U.S. bank, reported a 7 percent drop in first-quarter profit, while Bank of America (BAC: down $0.37 to $52.58, Research, Estimates), the No. 2 bank, said earnings fell 17 percent. First Union (FTU: down $1.52 to $30.40, Research, Estimates), the fifth-largest bank, posted a whopping 30 percent earnings decline. First Union Monday also announced plans to merge with Wachovia Corp. (WB: up $1.80 to $62.00, Research, Estimates) in a $13 billion stock deal, which would make it the fourth-largest U.S. bank.
In contrast, Bank of New York (BK: down $0.13 to $49.37, Research, Estimates) reported a 14 percent rise in first-quarter earnings with net income of $384 million, or 53 cents a share, up from $338 million, or 46 cents a share, a year earlier. That's a penny ahead of analysts' expectations of 52 cents a share, according to First Call.
New York-based Citigroup said it earned $3.7 billion, or 71 cents a share, in the quarter excluding one-time items, down from $3.9 billion, or 76 cents a share, a year earlier. But earnings were above Wall Street forecasts for 70 cents a share, according to earnings tracker First Call. Revenue grew 6 percent to $21 billion.
"The strength and diversity of our earnings by business, geography, and customer helped to deliver a strong bottom line in a period of market uncertainty," Citigroup Chairman Sanford Weill said, adding the company was "exceptionally pleased" with growth in its consumer, insurance and other businesses.
Credit Suisse First Boston Analyst Joan Solotar said Citigroup posted a good quarter considering the economic slowdown, which has trimmed investment and consulting activity. She said the diversity of Citigroup, which owns the Salomon Smith Barney investment firm, Traveler's Group insurance, and Associates First Capital, lessened the impact of the slowdown.
"It is economically sensitive, but there's lots of moving parts in many different regions, so those tend to provide greater balance and are less influenced by the downturn," Solotar said.
Solotar is looking for continued growth from Citigroup for the rest of the fiscal year. "Hopefully they will recover to some degree and the capital markets will help that. I thought this was a very good quarter in and of itself," she said.
In the first quarter, Citigroup posted core earnings of $1.78 billion, an 18 percent increase from $1.51 billion a year ago, in its Global Consumer business, which includes Citibank and its credit card units. Revenue increased 10 percent, offsetting investment losses with strong loan and deposit volume, the company said.
The unit acquired European American Bank in the quarter and saw global credit card income of about $600 million.
Citigroup's global corporate business, including Salomon Smith Barney, reported a 7 percent decline in first-quarter income as it took a $66 million restructuring charge for layoffs and severance. However, net revenue increased 11 percent for the unit in the quarter.
Private client income dropped 8 percent from a year ago and 47 percent from the first quarter reflecting increased market volatility, the company said.
Travelers reported a 13 percent increase in income reflecting increasing prices. But gains were offset by catastrophe losses related to the recent Seattle earthquake, Citigroup said.
Global investment management and private banking income increased 11 percent to $193 million in the quarter reflecting expanding activity in the retirement services market. Revenue rose 14 percent in the unit.
Citgroup also posted a narrower loss at its online component e-Citi of $7 million. Income from investment activity was $136 million, a sharp decline from the first quarter, the company said.
Slower growth at BOA
Bank of America said it earned $1.87 billion, or $1.15 a share, in the quarter, down from $2.24 billion, or $1.33 a share, a year earlier, but ahead of Wall Street forecasts of $1.12 per share, according to First Call.
Revenue declined 2 percent in the first quarter from a year earlier, reflecting a significant drop in investment gains due to the weakening stock market.
The company said the slowing economy made it difficult for corporations to pay back debt and that fewer initial public offerings contributed to the drop in earnings.
"We are pleased with our continued progress in meeting strategic goals and continue to see good customer flows across many business lines," CEO Hugh McColl said in a statement. "It is clear, however, that the increasingly weak economic environment is making it difficult for our efforts to show up on the bottom line."
Bank of America said average deposits were up $10 billion and that credit card fee revenue rose 18 percent, reflecting increased purchase volume and a sharp rise in debit card usage.
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The company also recorded a one-time gain of $140 million from the sale of its interest in the Star ATM network, as well as a one-time $83 million charge related to an accounting change.
Loan revenue did not grow in the quarter as a decline in corporate debt offset a 5 percent gain in consumer loans, the company said.
The provision for credit losses in the first quarter increased to $835 million from $425 million a year earlier.
The company also repurchased 14 million shares during the quarter, bringing the total number of repurchased shares since June, 1999, to 160 million.
Consumer and commercial banking increased 14 percent in the first quarter.
Global corporate and investment banking results fell to $604 million from $724 million a year ago.
First Union nosedives
First Union Corp. reported a first-quarter operating profit of $610 million, or 62 cents a share, down from $838 million, or 85 cents, a year earlier. That was in line with Wall Street forecasts of 62 cents a share, according to First Call.
The bank also cited bad loans and a slower IPO market, in addition to investment losses, for its shortfall.