Bank of America Profit Rises 17%, Tops Forecast
Setting the stage for an expected strong quarter of bank earnings, Bank of America Corp. on Monday beat analysts’ estimates and posted its best quarterly profit ever, as commercial-loan problems were less worrisome than feared and consumer business--especially mortgages--surged.
Citigroup Inc., the largest U.S. financial company, also reported higher profit but missed analysts’ expectations for the first quarter. That shortfall, along with worries over interest rates, the robustness of U.S. economic growth and instability in the Mideast and Latin America, dragged financial services stocks lower Monday amid a general market retreat.
Banking companies will post a flood of earnings this week, with Wells Fargo & Co., City National Corp. and the thrift Washington Mutual Inc. set to report today. Despite the recession, bank profits have been setting records.
The results reflect a tug-of-war between commercial lending, which has deteriorated, and consumer business, which has held up overall despite high bankruptcies and credit-card delinquencies. The Federal Reserve Board’s slashing of interest rates has been a major boon, allowing banks to cut interest rates on deposits while originating record numbers of mortgages.
“The consumer has remained very strong, and that has helped the economy, which helps banks because their earnings are reflections of the economy,” said Sanford C. Bernstein analyst Ronald I. Mandle.
At Bank of America, the nation’s largest retail bank, first-quarter revenue rose 2% to $8.69 billion. Profit was $2.18 billion, or $1.38 a share, up 17% from $1.87 billion, or $1.15, a year earlier. The consensus of analysts had been $1.34 a share, according to a Thomson Financial/First Call survey. However, bank officials gave a cautious outlook because of the uncertain nature of the U.S. economic recovery. B of A shares fell 85 cents to $69.20 on the New York Stock Exchange.
Citigroup reported profit of $4.84billion, or 93 cents a share, on revenue of $22 billion--a profit increase of 37% from $3.86 billion, or 69 cents a share, on revenue of $21billion a year earlier.
But excluding a $1.06-billion gain on the sale of a stake in Travelers Property Casualty Corp., Citigroup’s per-share earnings were 74 cents instead of the 78 cents analysts had expected, largely because of a larger-than-expected pretax charge of $816 million for losses in Argentina. Its shares fell $1.18 to $45.92 on the NYSE.
Last year, U.S. commercial banks earned a record $73.4 billion and shrugged off recession, Argentina’s collapse and the Enron Corp. debacle in the most profitable fourth quarter ever.
“It’s amazing these banks are still producing this high a level of earnings,” said Bear, Stearns & Co. analyst David B. Hilder. He noted that Bank of America cut expenses more than expected, had lower loan losses than expected and saw mortgage income rise 59%.
Profits at companies in the Dow Jones banking index are expected to rise by 9% this quarter and by 26% for the year, according to earnings tracker First Call.
Many analysts believe commercial lending will pick up this year as businesses rebuild inventory, helping make up for a decline in mortgage business after a record $2 trillion in originations last year.
One leading California sector has been banks catering to Asian customers, such as East West Bancorp Inc. in San Marino, whose report of record earnings last week boosted its stock from $30.20 a share last Wednesday to $35.05 on Monday in Nasdaq trading.
Wilshire State Bank in L.A.’s Koreatown on Monday reported a 23% increase in net income, to $1.9million, or 61 cents a share, sending its stock up $3.30, or 17%, to $23 on Nasdaq. And Cathay Bancorp Inc. in L.A.’s Chinatown rose $2.40 to $76.90 on Nasdaq on Monday after its profit rose 21% to $11.4million, or 63 cents a share.
Also Monday, Irvine-based Westcorp, whose subsidiaries include WFS Financial Inc. and Western Financial Bank, reported first-quarter net income of $16.9million, or 46 cents, compared with $17.7million, or 55 cents, a year earlier. Westcorp shares fell 74cents to $23 on the NYSE.
*
(BEGIN TEXT OF INFOBOX)
Banking On It
(text of infobox not included)
