Citigroup Inc and Bank of America Corp said first-quarter profit rose as the lowest interest rates in 40 years enabled the two biggest US banks by market value to borrow more cheaply.
Shares of both banks fell, with Citigroup dropping to a six-week low as the company missed profit forecasts after excluding the sale of shares in an insurance unit and increased Argentina and Enron Corp write-offs. Profit growth may slow as the Federal Reserve starts raising the target for overnight bank loans from 1.75 percent, after 11 rate cuts last year, investors said.
"If rates rise, it's a negative," said David Uhryniak, who helps manage Federated Investment Management's US$180 billion in assets, which include Bank of America and Citigroup shares.
Citigroup net income climbed 37 percent from the first quarter of 2001 to US$4.84 billion, helped by US$1.06 billion raised from the sale of a stake in Travelers Property Casualty Corp.
Excluding that gain, Citigroup's profit rose 4 percent, missing forecasts for the first time since the 1998 merger of Citicorp and Travelers Group Inc. Bank of America had a 17 percent rise in net income to US$2.18 billion, beating analysts' forecasts, as lending to consumers grew. Citigroup CEO Sanford Weill, who has pushed to expand consumer lending, and Bank of America CEO Kenneth Lewis, who depends on retail and commercial banking for almost two- thirds of revenue, cut the cost of lending by about a third in the first quarter after the Fed pushed down benchmark interest rates to spur the economy.
"The big surprise is that the banks did a good job of lowering deposit costs without losing customers," said Wayne Bopp, an analyst at Fifth Third Investment Advisers, which owns 1.5 million Citigroup shares. "With their cost of money lower, their interest margins did better."
Citigroup earned US$0.93 a share, up from US$3.54 billion, or US$0.69 a share, in the same period a year earlier, according to results published on the bank's Web site.
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