Bank of America and Citigroup shares fell as the banks’ results highlighted the stagnant US economy and costs of potential regulation, offsetting better-than-expected quarterly profits on lower credit losses.
Following JPMorgan Chase & Co on Thursday, Bank of America Corp on Friday reported a profit of US$3.1 billion in the quarter, down 20 percent from the same period last year, while Citigroup Inc said it made a US$2.7 billion profit in the quarter, down nearly 40 percent from a year earlier. That is a bleak sign for Goldman Sachs Group Inc and Morgan Stanley, which will report this week.
Bank of America said profits were driven by lower credit costs and the sale of non-core assets.
“We improved our capital foundation through retained earnings, and credit quality improved even faster than expected,” said chief executive officer Brian Moynihan.
Citi’s chief executive Vikram Pandit said that while “economic conditions remain challenging and global regulatory frameworks are uncertain,” the firm was well placed to see “sustained profitability.”
Bank of America and Citi, like their rivals, are grappling with how their businesses will be affected by the landmark financial reform bill passed by the US Congress on Thursday. Executives at Bank of America and Citigroup said the impact of the bill is uncertain.
In a presentation to analysts, Bank of America said the costs from credit card reform would total US$1 billion this year, changes to service charges and other fees could cost up to US$2 billion annually, while debit card reform could cost up to US$2.3 billion. The bank will also report a goodwill charge as large as US$10 billion this quarter, due to new debit card fee rules.
Citi executives, like those of JPMorgan on Thursday, said they were unable to quantify the possible costs for their business.
Banks will have to eke out revenue and cut costs wherever they can and try to make up elsewhere any revenue losses from financial reform, said Nancy Bush, analyst at NAB Research.
Shares of Bank of America fell their most in more than a year, down 9 percent to US$13.98 in afternoon trading on the New York Stock Exchange. Citigroup slumped more than 5 percent to US$3.95.
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