Bank of America, Citigroup earnings top expectations

Bank of America Corp. and Citigroup Inc. reported better-than-expected quarterly profits Friday on lower credit losses. But their shares fell on concern about the economy and the costs they face from financial regulation.

Following JPMorgan Chase & Co. on Thursday, the banks reported that investment banking profits fell between 20% and 40% from the first quarter because trading dried up in the wake of the “flash crash” in May and the European debt crisis.

Revenue was down broadly at Bank of America and Citi from a year earlier, and they, like their rivals, are grappling with how their businesses will be affected by the financial overhaul bill passed by Congress on Thursday. Executives at both companies said the effect of the bill was uncertain.

In a presentation to analysts, Bank of America said the costs from credit card reform would total $1 billion this year, changes to service charges and other fees could cost up to $2 billion annually, and debit card reform could cost up to $2.3 billion. The bank will also report a goodwill charge as large as $10 billion this quarter because of new debit card fee rules.

Banks will have to eke out revenue and cut costs wherever they can and try to make up elsewhere any revenue losses from regulatory changes, said Nancy Bush, an analyst at NAB Research.

“It’s going to be this way for the next several years,” she said.

Bank of America said it earned $3.1 billion in the quarter, down slightly from $3.2 billion in the year-earlier period. Revenue totaled $29.15 billion, down 11%.

After dividend payments, the bank earned $2.78 billion, up 15% from a year earlier. That topped the consensus analyst forecast of 22 cents a share, but revenue fell short of the forecast of $29.75 billion.

Citigroup earned $2.7 billion, or 9 cents a share, in the second quarter, down 37% from the 2009 quarter. Its latest revenue decreased 33% to $22.07 billion.

Citigroup topped the Wall Street consensus forecast of 5 cents a share on revenue of $22.16 billion.

Shares of Bank of America fell their most in more than a year, down 9% to $13.98. Citigroup, which is No. 3 behind JPMorgan, slumped more than 6% to $3.90.

Bank of America and Citigroup said credit costs broadly eased in the second quarter, allowing them to put less money aside against future losses. Both banks released about $1.2 billion net of taxes, equivalent to about 38% and 43% of their profit, respectively.

Loans at Bank of America slipped about $20 billion, or 2%, to $956 billion compared with the first quarter, and at Citi, total loans fell about $30 billion, or 4%, to $692.2 billion. Analysts and investors expressed concern about bank executives’ comments that credit demand was still weak.

McClatchy was used in compiling this report.