Two of the nation's biggest banks on Friday announced a combined $10.08 billion in fourth-quarter net losses on credit and other woes as the government redoubled its efforts to support a financial system that has shown few signs of recovery despite massive capital injections and restructuring in recent months.
Most of the red ink came from Citigroup Inc., which reported an $8.29 billion net loss as the company failed to show impressive — if any — growth at any of its four divisions, a stark contrast to a year earlier.
It also announced plans to reorganize along two business lines — its banking operations and everything else. Some of the latter will be shed as Citi pledges to slim down after years of being unable to fulfill its pledge of smartly operating as a financial supermarket.
Bank of America Corp.'s $1.79 billion quarterly loss, the company's first since 1991, comes as widening losses at its latest purchase, Merrill Lynch, are likely to overshadow everything else. The woes at the brokerage are why Bank of America went hat-in-hand to the federal government, which finalized an agreement overnight to invest another $20 billion in the company to ensure the it wouldn't back out of the Merrill deal.
That brought Bank of America's total it received under the Troubled Asset Relief program to $45 billion, in line with Citigroup and higher than any other banks. The government also agreed to backstop as much as $118 billion in potential losses on various assets, primarily those brought by Merrill Lynch. That figure, those, pales in comparison to the $301 billion that is part of Citigroup's aid.
Bank of America Chief Executive Kenneth Lewis on Friday rejected the suggestion that he and his team didn't conduct enough due diligence before agreeing to buy Merrill, saying forecasts didn't suggest Merrill's assets would drop so suddenly in value.
Citigroup's shares were recently up 6.2% at $4.07 while Bank of America was down 2.6% at $8.11 despite a broader rally among beaten-down financials.
The two banks' results look even worse when compared with Thursday's JPMorgan Chase & Co.'s results. Its commercial banking operations and acquisition of Washington Mutual last year allowed it to report a small fourth-quarter profit.
Citigroup Chief Executive Vikram Pandit said the company's core consumer franchise continued to perform well. But Pandit used an ax rather than a scalpel on the company, particularly in consumer finance, where he decided to split a business that other, more successful banking companies consider to be core. The company announced it will reorganize into two business lines focus on banking and other financial services.
Citi will unload its mortgage banking unit, a business most bankers remain deeply committed to because it is considered one of the best ways to enter a retail customer relationship. Mortgages had long been a relatively minor business for Bank of America, but that changed last year with its acquisition of Countrywide Financial.
At least some investors applauded Pandit's strategic action. Frank J. Barkocy, director of research at Mendon Capital Advisors Corp., said in an email that by separating problem assets, Citi "will be able to limit the extent of losses with the government-sharing program, which should help to preserve capital and help liquidity."
Bank of America, meanwhile, slashed its dividend to a nominal 1 cent a share as the company quickens its push to store away capital to brace against future loan losses, which continued to rise. Its loan-loss provisions nearly tripled in the quarter from a year earlier.