Bank of America Corp. (BAC:US) and Citigroup Inc. (C:US) posted two of the three biggest declines in the Standard & Poor’s 500 Index after results fell short of those at rivals as managers had to focus on cutting costs.
Bank of America, the second-largest U.S. bank by assets, fell 4.2 percent to $11.28 at 4:15 p.m. in New York after fourth-quarter net income slumped 63 percent to $732 million. No. 3 Citigroup dropped 2.9 percent after profit of $1.2 billion missed estimates (C:US) as litigation costs rose. JPMorgan Chase and Co., the largest U.S. bank, and No. 4 Wells Fargo & Co. (WFC:US) each announced quarterly profit this month of more than $5 billion.
Brian T. Moynihan, the chief executive officer of Charlotte, North Carolina-based Bank of America, is grappling with costs from mortgages originated before he took over three years ago. Michael Corbat, who became Citigroup CEO in October, is incurring expenses to resolve litigation and pulling back from some emerging markets. Each CEO is cutting jobs.
“Both organizations are, for lack of a better word, somewhat lost,” said Joshua Siegel, founder of StoneCastle Partners, a New York-based firm $5.1 billion in assets under management that invests in banks. The lenders “have been spending a significant amount of time dealing with the problems of the past rather than aggressively marketing the organizations.”
Quarterly dividends at both companies have been stuck at 1 cent a share as the banks work to build capital and sell riskier assets to meet regulatory standards. The firms had to slash payouts during the financial crisis to conserve capital and must await regulatory approval to raise them.
Wells Fargo and New York-based JPMorgan both exceeded analysts’ estimates, fueled by revenue tied mortgages. San Francisco-based Wells Fargo pays a dividend (WFC:US) of 22 cents a share. The lender slipped 0.3 percent. New York-based JPMorgan, which has a payout of 30 cents, dropped 1 percent.
Bank of America’s net interest income fell to $10.6 billion from $11 billion in the fourth quarter of 2011. First-mortgage production was little changed at $21.5 billion.
“Progress has been made with divestitures and cost cuts,” Citigroup analysts led by Keith Horowitz said today in a note on Bank of America. “However, the focus is shifting to earnings power and we believe it will take time for some of the earnings drivers to materialize.”
Moynihan has spent his first three years cleaning up after his predecessor’s takeover of Countrywide Financial Corp. and Merrill Lynch & Co., divesting (BAC:US) more than $60 billion of assets in the process. The bank announced an $11.7 billion deal to end disputes with Fannie Mae on bad home loans this month and joined an $8.5 billion industry accord to compensate for abusive foreclosures.
Corbat last month announced plans for the New York-based bank to eliminate about 11,000 employees and pull back from nations (C:US) including Paraguay, Romania and Turkey.
Citigroup’s earnings adjusted for one-time items including restructuring costs and a mortgage settlement were about 76 cents a share. Twenty-one analysts surveyed by Bloomberg estimated 96 cents on average.
Legal costs at the Citicorp division, which contains the consumer-banking and trading units, more than tripled (C:US) to $735 million, the bank said. While some of the increase was related to a federal foreclosure settlement, Chief Financial Officer John Gerspach told journalists that most was related to “a variety of issues” at the U.S. consumer bank.
Citigroup’s revenue from trading fixed-income products increased 58 percent excluding accounting adjustments to $2.71 billion from a year earlier. That was less than the $3.12 billion predicted by David Trone, an analyst at JMP Securities LLC in New York.
Fourth-quarter results showed “lackluster fundamentals,” Trone said in a note to clients. “Even after taking out negative items, Citi struggled to deliver much profit.”
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