Citigroup Inc.'s second-quarter profits rose 6%, while Bank of America Corp.'s fell 2%, but both companies said ongoing expense controls and gains in consumer and other traditional banking services helped offset the damage a slow economy did to corporate and investment banking results.
Both companies, the two largest U.S. banking firms to report earnings Monday, said they muddled through despite difficult market conditions and were taking steps, especially on the expense side, to brace for ongoing market uncertainty through the rest of the year.
Consumers may be the deciding factor in how well companies like Citigroup and Bank of America fare the rest of the year.
James Hance, chief financial officer of Bank of America, said he expected the economy to pick up momentum during the second half, but that the growth of the Charlotte, N.C., company's core consumer and commercial banking business "will be influenced by future consumer spending trends."
Bank of America's profits of $2.02 billion, or $1.24 a share, beat Wall Street's consensus target by 6 cents, and the company said it was "comfortable" with a full-year per-share earnings estimate of about $5.
During a conference call with reporters, Mr. Hance said Bank of America was aggressively selling off problem loans and hunkering down on its business reengineering project to prepare for big revenue gains once the economic climate improves later this year. It is continuing to review its business lines and would consider exiting or reorganizing those that are underperforming, he said.
The company sold $500 million of problem credits in the quarter and nearly doubled its loan-loss provisions from a year earlier, to $800 million, but its nonperforming assets will continue to climb over the "next couple of quarters," Mr. Hance said.
However, he also said he was "cautiously optimistic" on the outlook for credit in general. "Over the next six months we will deal with as many of our credit problems as we can."
Meanwhile, Citigroup posted $3.54 billion of profits. Excluding the effects of severance and other charges, its operating income rose 13% from a year earlier, to $3.8 billion, or 74 cents a share, in line with estimates.
Sanford I. Weill, chairman and chief executive officer, said during a conference call Monday that the company, which has worked to diversify across business lines and continents, was prepared for any economic eventuality. "We look at weak markets as markets of opportunity."
Citi fired 1,800 employees in its global corporate and investment banking operations over the last quarter, and the company continues to keep a close watch on expenses, Mr. Weill said. "We are reviewing all of our businesses. That will be ongoing."
The company said it took $133 million of after-tax charges for severance and $116 million for an accounting rule change. Expenses rose 1% from the same period last year, to $9.4 billion, but they fell 10% from the first quarter as a result of Mr. Weill's austerity efforts.
"There is probably more that can be achieved over the second half," said Richard Strauss, an analyst at Goldman Sachs Group. "The benefits of those staff reductions should be felt more fully" this quarter. "Moreover, there are more costs to remove in the consumer finance business."
Total revenues rose 8%, to $20.3 billion, led by a 12% gain in revenues from global consumer operations, to $10.7 billion. Revenues from global asset management and private banking rose 6%, to $867 million. Revenues from global corporate and investment banking fell 2%, to $4.7 billion.
Credit losses mounted during the quarter, especially in consumer businesses. The company said its net credit losses from North American credit card operations rose 45%, to $1.4 billion, because of the weakness in the economy and the rush to file for bankruptcy before the law changed. Nonperforming assets rose 6% from the first quarter, to $8.5 billion, because of higher losses in cards.
The company is scheduled to complete its $1.9 billion acquisition of European American Bank of Uniondale, N.Y., this week. During the second quarter Citi also announced plans to buy Mexico's second largest banking company, Grupo Financiero Banamex-Accival.
Analysts said they expect Citi to make more acquisitions, especially in emerging markets. "There seems to be a willingness to consider" deals, said David Berry, director of research at Keefe, Bruyette & Woods Inc.
Shares of Citigroup rose 0.6%.
BANK OF AMERICA CORP.
The company said it had completed a companywide program begun last year that resulted in the elimination of 10,000 jobs, most of them in the mid- to senior-executive ranks.
Mr. Hance said Monday that it had no plans for more mass layoffs in the foreseeable future.
Bad loans increased, but growth in service charges, investment banking fees, and other fees helped Bank of America top estimates. "The weak areas were as expected, and good areas were better than expected," said Michael Mayo, an analyst at Prudential Securities.
Net chargeoffs rose 67% from a year earlier, to $787 million.
The company said its revenues grew 8%, to $8.9 billion, with major increases coming in net interest income, which rose 9%, to $5.12 billion, and consumer fees, which climbed 11%. Investment banking revenues were rose 13%, to $2.36 billion, helped by a booming business in underwriting fees for corporate debt offerings, though profits for that division fell 7%, to $450 million, as a result of rising expenses.
Bank of America's net interest margin grew to 3.61%, versus 3.23% a year ago.
Consumer and commercial banking revenues were up 6% and led to a 2% increase in profits from the segment, the largest contributor to the bank's earnings. With interest rates falling, consumer loans, including credit card, home equity, and mortgage loans, grew 10%.
Bank of America's asset management profits fell 27% from a year ago, to $116 million. Mr. Hance blamed the disappointing quarter in part on increased loan provisions to cover one large, unspecified loss during the quarter. He said the company also continued to spend on building its business.
Shares of Bank of America rose 2%.