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Bank of America recorded a 63% drop in fourth-quarter earnings thanks to a pair of hefty mortgage settlements, but that beat expectations and seemed downright rosy compared with the disappointing results from rival Citigroup.
Net income at BofA fell to $732 million, but at 3 cents earnings per share the bank still managed to edge out the Street?s consensus estimate by a penny. Revenue of $19.6 billion was lighter than expected.
By contrast, Citigroup whiffed with its fourth-quarter results, with earnings per share of 69 cents (ex-items) that were well below the consensus call for 97 cents. Net income, excluding credit valuation adjustments, was $2.2 billion, on revenue of $18.7 billion.
Citi?s results were light in part because the bank released just $86 million in loan loss reserves, compared with $1.5 billion in the year earlier period. Dating back several quarters, big banks have allowed the massive reserves put aside to cover potential mortgage losses in the wake of the financial crisis to pad earnings.? JPMorgan Chase, for instance, generated a $700 million pre-tax benefit from releasing loan loss reserves in Q4 according to its earnings report Wednesday.
Thursday?s disappointment from Citi comes as the first earnings report under Chief Executive Michael Corbat, and left investors wondering whether it was something of a ?kitchen sink? quarter. Setting low expectations seems like a winning strategy for banking executives these days, and Corbat, who announced 11,000 job cuts in his first major move from the corner office in December, certainly has a hurdle he should be able to clear in the quarters to come.
?Our bottom line earnings reflect an environment that remains challenging ? with businesses working through issues like spread compression and regulatory changes ? as well as the costs of putting legacy issues behind us,? Corbat said, touting progress like raising the firm?s Basel III capital ratio to 8.7% and citing goals like rebuliding core earnings potential and achieving better return on assets and tangible equity.
Shares of Citigroup were down 3.4% in early trading Thursday, while BofA went from modest pre-market declines to a 3.7% drop thanks to the hefty legal costs in the bank?s quarter and more tepid guidance than anticipated. JPMorgan was down 0.7%. The broader market opened in the green, with the S&P 500 up 0.2%.
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