Business World

Monday 18 December 2017

BoA and Citi shares tumble on bad results

Peter Flanagan

Peter Flanagan

SHARES in the two of the biggest US banks, which employ more than 4,000 people in Ireland, slumped yesterday, after the companies reported much worse results than had been expected.

In disclosures that shocked investors, Bank of America (BoA), which has close to 1,700 staff here, and Citigroup, which has nearly 2,500 employees here, revealed fourth-quarter earnings that missed analysts' expectations by a wide margin.

BoA said fourth-quarter net income dropped to $732m (€548.4m) from $1.99bn a year earlier. Revenue declined 25pc as unwanted units were sold and results were sapped by regulatory settlements and accounting expenses.

BoA chief Brian Moynihan has spent his first three years cleaning up after his predecessor's takeover of Countrywide Financial and Merrill Lynch.

The bank announced an $11.7bn deal to end disputes with Fannie Mae on bad home loans this month and joined an $8.5bn industry accord to compensate for abusive foreclosures.

Fourth-quarter revenue declined to $18.7bn from $24.9bn a year earlier. For the full year, profit more than doubled to $4.19bn, as revenue declined $10bn to $83.3bn.

"We feel very good about the momentum we've seen, particularly in the second half of the year," chief financial officer Bruce Thompson told reporters. "Revenues have stabilised and activity across the company has picked up significantly."

Meanwhile, Citigroup's profit increased less than analysts estimated as litigation costs rose and benefits from releasing loan-loss reserves declined.

Restructuring costs

Net income climbed 25pc to $1.2bn in the fourth quarter. Earnings adjusted for one-time items, including restructuring costs and a mortgage settlement, were about 76 cents a share but analysts expected earnings of about 96c.

Legal costs at the Citicorp division, which contains the consumer-banking and trading units, more than tripled to $735m, the bank said.

While some of the increase was related to the federal foreclosure settlement, the bank said most was related to "a variety of issues" at the US consumer bank.

Despite the miss, analysts were split on the strength of the results.

"New management won't mind sacrificing a little earnings in the fourth quarter to help make 2013 earnings goals easier to hit," said Marty Mosby, an analyst with Guggenheim Securities.

"They really aren't going to be held accountable for what happens in the fourth quarter."

In contrast, Charles Peabody, of New York-based Portales Partners, said Citigroup has repeatedly "trashed the fourth quarter. One has to wonder if the first three quarters of the year are truly reflective of their core earnings power".

By mid afternoon in New York, Bank of America was down 3.6pc, while Citigroup had lost 2.8pc. (Additional reporting by Bloomberg)

Irish Independent

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