Banking giants’ profits strong

Eileen Alt Powell

Monday, July 14, 2003 | 9:44 a.m.

NEW YORK -- Citigroup and Bank of America today reported stronger-than expected performance in retail and investment banking in the second quarter, with profits beating analysts' estimates.

Both banks are big players in the Las Vegas market. They credited mortgage originations and fixed-income trading as contributing to the results announced today.

They were the first of the major banks to announce earnings, which analysts expect to show gains reflecting improvements in the U.S. economy and stock markets.

Citigroup, the nation's largest financial institution, said gains in retail banking, including mortgage originations, boosted earnings in the April-June quarter to $4.3 billion, or 83 cents a share.

That was 3 cents above the estimates of analysts surveyed by Thomson First Call.

In the second quarter last year, net income at the New York-based bank was $4.1 billion, or 78 cents a share.

Citigroup shares rose strongly after the bank announced that it was raising its quarterly dividend to 35 cents a share from 20 cents a share, payable on Aug. 22 to stockholders of record on Aug. 4.

In early trading, shares were up $1.35, or nearly 3 percent, to $47.50 on the New York Stock Exchange.

Citigroup Chairman and Chief Executive Sanford I. Weill noted that the bank had done especially well in retail and investment banking.

"Once again, our consumer businesses delivered exceptional income growth ... led by 63 percent growth in retail banking, which earned over $1 billion this quarter," Weill said in a statement accompanying the results.

He added that the corporate and investment bank results "reflect a record quarter in fixed income trading." Growth was especially strong in the bank's European division, which also includes Africa and the Middle East, he said.

Weill also revealed that Citigroup was "shifting much of our equity-based compensation from options to restricted stock," a strategy that other big corporations, including Microsoft, are adopting amid pressure for accounting reform. He added that Citigroup also would require workers who exercise options to hold their shares for a minimum of two years.

The first-quarter results looked even stronger after adjusting for Citigroup's sale last year of its Travelers Property Casualty Group.

Excluding Travelers, the April-June earnings of $4.3 billion were up 12 percent from net income of $3.83 billion in the first quarter of 2002.

For the first half of the year, earnings were $8.4 billion, or $1.62 a share, compared with $8.9 billion, or $1.71 a share. Excluding Travelers, earnings in the first half of 2002 were $7.31 billion, or $1.40 a share.

Total revenue was $19.35 billion in the April-June quarter, up 8 percent from $18 billion a year earlier. Revenue for the first half was $37.9 billion, up 6 percent from $35.8 billion in 2002.

Bank of America, the nation's third largest bank, said strong gains in its mortgage business pushed second-quarter earnings to $2.74 billion, or $1.80 a share, in the April-June quarter from $2.22 billion, or $1.40 a share, in the same period last year.

The results at the bank, which is based in Charlotte, N.C., were well ahead of the $1.57 expected by analysts surveyed by Thomson First Call.

In early NYSE trading, shares changed hands at $83.70, up 82 cents or nearly 1 percent.

Consumer banking continued to drive earnings, although chairman and chief executive Ken Lewis said diversification also was paying off.

"While the consumer bank continues to significantly drive earnings, the core results in our market-related businesses are positive," Lewis said.

Profits for the first half of 2003 were $5.16 billion, or $3.39 a share, up from $4.4 billion, or $2.77 per share, a year ago.

Mortgage originations reached a record $40 billion, and credit and debit card purchase volumes also increased, the bank said.

Revenue grew to $9.62 billion in the second quarter, up 12 percent from $8.58 billion a year earlier, and credit losses dipped to the lowest level since the beginning of 2001, the bank said.

The bank recorded a pretax impact of $32 million related to expensing employee stock options.

During the quarter, Bank of America issued 29 million shares related to employee options and stock ownership plans and repurchased 30 million shares.