Citigroup Inc. and Bank of America Corp. reported declines in first-quarter profits Monday on weakness in private equity investments and corporate banking, and the results also showed signs of continued deterioration in consumer and commercial credit quality.
However, the two largest U.S. banking companies said they were taking steps to rein in expenses. Citi took $110 million of pretax severance charges in the first quarter to account for an unspecified number of job cuts, mostly in its corporate and investment banking group. Bank of America said it would eliminate 1,200 more positions in the second quarter as part of an ongoing job-cutting program.
Citigroup's first-quarter profits fell 8%, to $3.66 billion. Excluding one-time charges, per-share earnings were 71 cents, a penny above analyst estimates.
Profits at Bank of America, of Charlotte, N.C., dropped 17%, to $1.87 billion, or $1.12 per share, as higher provisions for credit losses and lower private equity gains than a year earlier took their toll.
James H. Hance, chief financial officer of Bank of America, said that while the "economic volatility makes it difficult for us to project with certainty" which direction the economy will take, the company expects to see higher levels of nonperforming assets "at least over the next couple of quarters."
Nevertheless, analysts said they were pleased with the results, which beat the consensus in both cases. "They had a good quarter, but the question is what about next quarter?" said David Berry, director of research at Keefe, Bruyette & Woods Inc. "That's why they are laying people off."
Meanwhile, other banking companies posted double-digit gains in profits, proving that the economic slowdown is not impacting all companies equally. Earnings at Fifth Third Bancorp of Cincinnati, which is in the process of absorbing its acquisition of Old Kent Financial Corp. of Grand Rapids, Mich., rose 18%, to $244 million.
In a conference call, Sanford I. Weill, chairman and chief executive officer, said the job cuts would be "relatively broad based" within the corporate and investment banking group. Some have already been announced to staff, and some are still in the planning stages, he said.
Richard Strauss, an analyst at Goldman Sachs Group, said the company's profits "generally reflect what is going on in the economy."
As in the fourth quarter, consumer businesses helped lift revenues and earnings even as corporate and investment banking profits declined. Revenues from global consumer operations rose 10%, to $10.4 billion, and profits from the group rose 18%, to $1.8 billion.
Revenues from global corporate banking rose 11%, to $9.5 billion, but profits from the group declined 7%, to $1.7 billion.
Some analysts said they were concerned about credit quality. Credit card losses jumped to 4.84% of receivables, up from 4.22% in the fourth quarter and 4.65% in the first quarter last year. Net commercial credit losses jumped 16% from the fourth quarter and 59% from a year earlier, to $277 million.
Citigroup also revealed that Salomon Smith Barney added $17 billion of insured deposits during the first quarter. In January the brokerage unit began offering customers up to $600,000 in federal insurance coverage by using a network of six Citigroup-owned banks.
The program's success is likely to spark protest from critics who contend it is unfair for Salomon to insure billions of dollars without paying any premiums to the Federal Deposit Insurance Corp. Merrill Lynch & Co., which triggered the debate a year ago, has transferred more than $50 billion to insured accounts.
The additional deposits dilute the ratio of federal reserves to insured deposits, and if the ratio fell below the statutory 1.25% minimum, all banks would be forced to pay premiums again for the first time in five years. The bank fund's ratio is currently 1.35%, and $17 billion of new deposits would dilute it by 1 basis point.
Shares of Citigroup fell 0.75% Monday, to close at $46.95.
BANK OF AMERICA
Per-share earnings of $1.12 beat the consensus estimate by three cents.
Nonperforming assets increased 69% from a year earlier and 8% from the fourth quarter, to $5.9 billion. Most of the gain came from soured credits in the domestic commercial portfolio.
The company's nonperforming assets included a credit to the California electric utility Pacific Gas and Electric Co., which has filed for bankruptcy, and one to an unnamed chemical and plastic company.
During the quarter, the company sold about $300 million of weak credits, mostly nonperformers.
Bank of America also indicated that it has "not quite finished" with a expense reduction program started in July that set out to ax 10,000 middle-management positions. The company said it still has "upwards of 1,200-plus additional headcount reduction to go, which should occur in the second quarter," Mr. Hance said.
Noninterest income dropped 7% from a year earlier, to $3.7 billion, mostly because of a 74% drop in equity investment gains. One boost to this business line came from a $140 million gain from the sale of a stake in the Star Systems Inc. automated teller machine network.
The company's shares fell 0.94%, to close at $52.45.
Per-share earnings of 51 cents met the expectations of Wall Street analysts.
George A. Schaefer, president and CEO at Fifth Third, said profits rose on strong deposit growth trends and a 20% increase in fee income, which was attributed to a 31% revenue increase in the data processing unit. The company's debit card and e-commerce unit also posted a 30% gain in revenues.
Its loan-loss provision increased 42%, to $30.3 million. Net chargeoffs for the quarter were $30.9 million.
Shares of Fifth Third fell 0.99, to $51.03.