The two largest U.S. banking companies reported declines in fourth-quarter profits, but the similarities ended there.
Citigroup Inc. said profits fell 6% from a year earlier, to $2.8 billion, because of charges for its purchase of Associates First Capital Corp. Revenues from consumer and international operations offset declines in investment banking and brokerage.
Meanwhile, Bank of America Corp. said increased loan losses dragged profits down 27%, to $1.39 billion. Its per-share earnings of 85 cents were a penny shy of already lowered estimates. The Charlotte, N.C., company had warned last month that credit quality would hamper results.
Bank of America has been trying to deal with steadily rising nonperforming assets in recent quarters. It had considered a loan sale, like FleetBoston Financial Corp.'s recent sale of $1.35 billion in problem credits to Patriarch Partners of New York, but decided against it.
"We've been looking at various bulk sales since September," said James H. Hance Jr., Bank of America's chief financial officer, during a conference call Tuesday. The company also talked to Patriarch, he said. "Our assessment was that the loss sustained in that transaction was larger than the cosmetic benefit."
Several regional banking companies reported results that met or beat expectations Tuesday. All of them experienced growth in nonperforming assets during the quarter as last year's economic slowdown continued to hurt bank lending operations. [See story, page 2]
"There is the nagging question of how slow economic growth will become," and a hard landing would hurt loan quality, said Joseph V. Battipaglia, chairman of investment policy at Gruntal & Co.
The company racked up $491 million of merger-related charges for the quarter. Excluding the charges, per-share earnings of 65 cents met expectations.
Citigroup, whose businesses are spread across consumer and corporate banking segments in the United States, including insurance and asset management capabilities, made it through the fourth quarter in relatively better position than other companies. Its net credit losses rose 28% from the third quarter, to $1.5 billion.
Sanford I. Weill, chairman and chief executive officer, said the credit outlook would likely worsen this year. "In our budget, we have room to raise reserves if and when we see fit," he said during a conference call. "I would definitely look for some credit deterioration this year."
Revenues from global consumer businesses rose 7%, to $7.9 billion. The increase came from gains in credit cards and consumer lending. Revenues from North American credit card operations rose 6%, to $2.1 billion.
Revenues from global corporate and investment banking rose 14%, to $7.9 billion, and profits 10%, to $1.4 billion, as double-digit gains from business in emerging markets offset a weakness from brokerage activities.
Profits from Salomon Smith Barney declined 13% from a year earlier and 18% from the third quarter of last year, to $716 million, because of a slowdown in capital markets activities and higher compensation.
Shares of Citigroup rose 2.9% to $54.6875.
BANK OF AMERICA CORP.
Nonperforming assets jumped 24% from the previous quarter, to $5.5 billion, the company said. Mr. Hance said most of the problems were in the domestic commercial lending sector.
Analysts said that Bank of America's December warning prepared investors for Tuesday's results. "The market was bracing for additional information it didn't get and reacted positively," said David C. Stumpf, an equity analyst with A.G. Edwards & Sons in St. Louis.
Mr. Hance said the troubled loans "are spread across a handful of industries." Included in the mix is the troubled California utility market, where Bank of America is exposed to three companies, he said.
One major California utility, Southern California Edison, on Tuesday suspended nearly $600 million of payments to creditors. The utility's parent company, Edison International, said the move is meant to conserve cash.
Bank of America also has exposure to two large credits in other industries, which observers understand to be the troubled Sunbeam Corp., a manufacturer of household appliances, and the financial services company Finova Group.
Bank of America reported a $65 million loss in its private equity area.
Analysts said there were some bright spots for the Charlotte banking company. Revenues from investment banking fell 7%, to $2 billion, but Mr. Stumpf said that decline was smaller than it could have been, given the tough market environment toward the end of the year. Total fee revenues fell 8%, to $3.3 billion.
Most people are clearly focused on Bank of America's credit issues, Mr. Stumpf said. "The credit quality clouds continue to darken."
Shares of Bank of America rose 3.8% to $50.9375.
Matthias Rieker contributed to this report.