Citigroup Inc. and Bank of America Corp. on Monday reported sharply higher first-quarter profits, extending a string of strong profit statements from banks with investment banking, venture capital, and other market-related businesses.
Regional banks continued their mixed performance, however, with U.S. Bancorp the only one reporting Monday to disappoint Wall Street by coming in below estimates.
Citigroup said net income jumped 52%, to $3.6 billion, or $1.04 a share, handily beating analysts' estimate of 78 cents. At Bank of America Corp., profits rose 17%, to $2.24 billion, or $1.33 a share. Wall Street had expected $1.24 a share, according to First Call.
Several regional banks also reported strong results Monday, bolstered by market-related business and lending. Bank of New York Co. reported a 7% gain in profits, to $338 million, on double-digit increases in its securities processing business. Comerica Inc. said profits rose 12%, to $178 million, from strong commercial lending growth and asset management.
U.S. Bancorp said net income gained 3.3%, to $379 million, bolstered by investment banking gains. But the Minneapolis company fell a penny shy of the consensus on weaker-than-expected retail banking and higher-than-expected expenses.
Despite severe market volatility in early April, which analysts believe could dampen banks' near-term profits, many bankers said they remained optimistic.
"This correction may well bring some sense and some reality to a large segment of the marketplace," Citigroup chairman and CEO Sanford I. Weill said in a conference call Monday. Mr. Weill added that the current market environment is creating opportunities for Citi to better position itself for growth.
Still, some market watchers said banks' profits very well may have peaked in the first quarter. "The big banks continue to rely on venture capital and other gains that may not be around" in future quarters, said Michael Mayo, an analyst at Credit Suisse First Boston. "The party may not be over, but it's definitely after midnight."
Total revenues at Citi rose 19%, to $17.5 billion, and the company said it had growth across all major businesses.
Global corporate banking, which includes Salomon Smith Barney, posted a 15% gain in revenues, to $8.1 billion, and a 36% gain in profits, to $1.8 billion.
Salomon Smith Barney said revenues rose 25%, to $4.2 billion, and profits rose 48%, to $957 million. Revenues from commissions rose 45%, to $1.3 billion. Fees from investment banking activities rose 38%, to $905 million, and asset management and administration fees rose 32%, to $499 million.
Mr. Weill will take sole possession of the top job at the $739 billion-asset banking company when co-CEO John S. Reed officially retires this month. He said during the conference call that the outlook at Salomon was "very good." He alluded to a "large" securities offering that could be unveiled as early as next week.
Revenues from global corporate banking activities increased 8%, to $2.4 billion, and profits rose 24%, to $643 million
Profits from investment activities, a category that includes venture capital investments, rose to $634 million, from $213 million in the fourth quarter and $90 million in the first quarter of 1999. Citi accounts for profits in the business by reporting gains or losses from the sale of securities and by marking to market, at a discount, other securities held in the portfolio.
Mr. Weill said that the equity investment results would probably not sustain their torrid first-quarter pace. The $634 million in revenue accounted for 17.6% of the company's profits, he said. Normally, the business contributes 6% to 10%, he said.
Investment management and private banking revenues rose 21%, to $438 million, and their profits rose 13%, to $90 million. Total assets under management rose 11%, to $375.6 billion.
Citi's global consumer operations had a 12% gain in revenues, to $7.6 billion, and a 23% gain in profits, to $1.2 billion. Consumer services got a boost from continued cost-cutting initiatives, improved credit quality, and product cross selling, the company said.
In North America, branch banking revenues rose 14%, to $576 million, and profits rose 92%, to $138 million, driven by higher spreads on deposits, an increase in fees gathered from investment product sales, and a 6% reduction in expenses. Mortgage banking revenues gained 19%, to $204 million, and profits rose 3%, to $63 million.
Credit card operations posted a 1% gain in revenues, to almost $2 billion, and an 8% gain in profits, to $297 million. The company said U.S. receivables grew 6%, to $73.3 billion. Chargeoffs for the U.S. card business fell to 4.35% of receivables, from 4.43% in the fourth quarter and 4.72% in the year-earlier quarter.
Expenses rose 14%, to $8.3 billion, driven by a 10% increase in compensation and benefits, the company said.
Citigroup shares rose $1.25 to close at $59.250.
Bank of America Corp.
Fee income rose 26%, to $4.05 billion, driven by a 33% jump in revenues from corporate and investment banking, to $2.9 billion.
Bank of America reported a 70% gain in investment banking fees, to $397 million, and a 45% gain in trading profits, to $724 million.
Venture capital gains had a major role in the improvement, analysts said. Bank of America reported gains from equity investments of $563 million, up from $205 million in the fourth quarter and $155 million in the first quarter last year. Much of the gain was from the sale of securities, but about $189 million reflects the marked-to-market value of securities still held by the bank.
The Charlotte, N.C., company also reported a 14% gain in revenue from investment and brokerage activities, to $485 million, driven by a 17% gain in retail brokerage fees, to $364 million.
"Bank of America is finally benefiting from some of the market forces that have helped other large banking companies," said David C. Stumpf, analyst with A.G. Edwards & Sons Inc. in St. Louis, who called the results B of A's "best in quite a while.".
"The growth in revenue and earnings this quarter demonstrates that our strategy to create more valuable customer relationships is beginning to show results," chairman and CEO Hugh L. McColl Jr. said in a statement.
But, as at other companies, Bank of America felt the pinch of rising interest rates. Mortgage banking fees dipped 3%, to $128 million. Overall, net interest income fell almost 2%, to $4.52 billion. Total loans and leases grew to $382.1 billion, up 3.1% from the fourth quarter of 1999 and 5.2% from the year-earlier period.
James Hance Jr., vice chairman and chief financial officer, said during a conference call with analysts that the consumer bank is growing fastest in the west and in Florida, regions that because of merger activity have been the company's most tumultuous in recent years.
Nonperforming assets rose to $3.48 billion, from $3.21 billion in the fourth quarter and $3.12 billion in year-earlier quarter. Mr. Hance attributed much of the increase to one large health-care credit, which he declined to name.
Expenses ticked up 3.8%, to $4.62 billion.
Bank of America shares rose 37.5 cents to close at $50.3125.
Though it got a lift from its Piper Jaffray investment banking unit, Minneapolis-based U.S. Bancorp had a tepid quarter for retail banking and slightly higher expenses. Earnings per share of 52 cents missed the consensus estimate by a penny.
The results included $13.1 million in charges related to the company's acquisitions of Western Bancorp and Peninsula Bank of San Diego.
Fee income rose 27%, to $795.7 million, driven by capital markets and credit cards; the figure excludes merger-related charges.
Investment banking revenues at its Piper Jaffray subsidiary surged 160%, to $94 million. Trading account profits and commissions jumped 62%, to $83.6 million.
Revenues from credit cards rose 26%, to $159.5 million, fueled by corporate Visa card and purchasing card services.
Weak deposit growth has forced the $83 billion-asset banking company to spend to improve retail customer retention and service. Sluggishness in retail banking in the first quarter did little to improve investor opinion. "The bank has been in the penalty box" since it issued an earnings warning late last year, said R. Jay Tejera, an analyst at Ragen MacKenzie Inc. in Seattle.
Total deposits rose 4.8% to $51 billion, while revenues from deposits increased 5.4%, to $109 million.
Susan Lester, chief financial officer, said the retail bank is not growing at a rate the company would like to see, but a turnaround was unlikely to happen in the first quarter. "We're in a period of transition," Ms. Lester said. Income from consumer banking rose 6.3%, to $89.7 million, boosted by a 17% rise in home equity and second mortgage loans, the company said.
Expenses, excluding merger charges, rose 24%, to $887.9 million. The company said it spent money to build investment banking and brokerage businesses and invest in sales and technology projects.
U.S. Bancorp shares fell 31.25 cents to close at $21.
Bank of New York Co.
Earnings per share of 46 cents beat the consensus by a penny.
Fee income rose 18%, to $737 million, fueled by a 21.6% gain in fees from processing services, which make up almost 60% of total noninterest revenues.
"The increased pace of investment activities worldwide resulted in all areas of securities servicing exceeding expectations," said Thomas A. Renyi, chairman and chief executive officer of the $76 billion-asset banking company, in a statement.
Fees from securities processing rose 28%, to $372 million. The company attributed the gains to expanded market share, particularly through the acquisition last year of Royal Bank of Scotland's trust operations in Europe. Assets under custody reached $6.7 trillion during the quarter, the company said.
Bank of New York also reported gains from other market-related activities. Fees from private client services and asset management rose 20.6%, to $70 million.
Revenues from foreign exchange and trading activities soared 81%, to $76 million, driven by additional cross selling efforts with Bank of New York's global custody customers and expanded trading activities in Europe.
Expenses rose 18.2%, to $602 million, as expansion overseas brought more spending on technology.
Bank of New York shares rose 12.5 cents to close at $39.5625.
Earnings per share of $1.10 beat Wall Street's consensus by 1 cent.
Fee income jumped 41% from the year-earlier period, to $221 million, as fiduciary and investment management income - largely from Comerica's Munder Capital Management subsidiary - rose 44%, to $79 million. Munder owns the wildly successful Internet-oriented Net Net Fund, which had a 174% return last year.
Fee income in the first quarter also included a $30 million gain from the sale of $457 million in revolving check credit and bankcard loans, the company said.
Gains from fee-generating businesses eclipsed the growth of more-traditional banking businesses at the $40 billion-asset Detroit banking company. Net interest income rose 10%, to $405 million, as business-loan volume shot up 12%, the company said.
Despite higher interest rates, "demand has been very good" for credit among the bank's target commercial loan customers, said Ralph Babb, vice chairman and chief financial officer.
Expenses rose 13%, to $296 million.
Comerica shares rose $1.0625 to close at $42.0625.
Liz Moyer, Louis Whiteman, and Laura Mandaro contributed to this report.
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