Shares of Manhattan-based Citigroup Inc. declined more than 2 percent Thursday after the bank’s quarterly earnings plunged 86 percent due to litigation expenses. Meanwhile, shares of Bank of America Corporation, the second-largest U.S. lender, dropped more than 3 percent after the company's earnings sank 11 percent, driven by a decline in trading revenue.
Initial fourth-quarter results are beginning to reveal a lackluster earnings season for the banking sector. The two separate reports come a day after investment giant JPMorgan Chase & Co. reported a 6.6 percent drop in quarterly profit as legal costs exceeded $1 billion in the wake of government probes.
Legal Expenses Wreak Havoc On Citigroup’s Earnings
Shares of Citigroup Inc. (NYSE:C) dropped more than 2 percent, to $47.74, Thursday after the bank’s fourth-quarter earnings plunged 86 percent due to a $3.5 billion charge from legal costs. Citigroup has also spent $2.4 billion in restructuring costs over the past two years.
Citigroup reported a fiscal fourth-quarter net income of $350 million, or earnings of 6 cents per share, on revenue of $17.8 billion, compared with a profit of $2.46 billion, or earnings per share of 77 cents, on revenue of $17.78 billion a year ago. Analysts had expected the bank to post net income of $339.12 million, or earnings of 10 cents per share, on revenue of $18.93 billion, according to Reuters data.
Legal and related expenses and repositioning charges totaled $3.5 billion in the fourth quarter, compared to $1 billion during the same period a year ago. Citigroup's effective tax rate was 72 percent in the fourth quarter, a jump from 32 percent in the year-ago quarter, driven by a significantly higher portion of non-tax-deductible legal expenses. Meanwhile, the company’s operating expenses in the fourth quarter included legal expenses and other related expenses of $2.8 billion, compared with $159 million a year earlier.
While the overall results for 2014 fell short of expectations, Citigroup recorded a profit during 2014. “For the first time since its establishment, Citi Holdings was profitable for the full year,” Michael Corbat, chief executive officer of Citigroup, said in the report. Citigroup’s full-year net income was $7.3 billion on revenue of $76.9 billion, compared with a profit of $13.7 billion on revenue of $76.4 billion in 2013.
Bank of America’s Profit Tumbles 11%
Bank of America Corporation’s (NYSE:BAC) stock price dropped more than 3 percent, to $15.55, Thursday after the financial institution reported an 11 percent drop in quarterly profit, largely due to lower revenue from fixed-income trading.
Bank of America reported fiscal fourth-quarter net income of $3.05 billion, or 25 cents per share, on revenue of $19 billion, compared with a profit of $3.44 billion, or earnings per share of 29 cents, on revenue of $21.49 billion a year ago. Wall Street had expected Bank of America to report net income of $3.64 billion, or earnings per share of 33 cents, on revenue of $21.33 billion, according to analysts polled by Thomson Reuters.
Revenue from the company's fixed-income trading division fell more than 20 percent, to $1.46 billion, driven by weakness in credit and mortgage trading.
The Charlotte, North Carolina-based company shocked investors in November after it lowered its third-quarter profit by $400 million as part of a revision, citing legal expenses related to its foreign exchange business. Bank of America agreed to pay $250 million in fines to the Office of the Comptroller of the Currency, which regulates and supervises national banks. The bank also paid more than $16 billion during the third quarter to resolve allegations of mortgage-related misconduct ahead of the 2008 financial crisis.
Bank of America’s litigation expense fell to $393 million from $2.3 billion a year earlier.
“There's more work and tremendous opportunity ahead as we improve on the platform we've built to serve our customers and clients, and we enter 2015 in good shape to manage both the opportunities and the challenges the markets and economy will offer," Brian Moynihan, chief executive officer at Bank of America, said in the report.
For the full-year, Bank of America’s profit tumbled nearly 60 percent from a year ago. The bank posted net income of $4.8 billion, or 36 cents per share, on revenue of $85.1 billion, compared with a profit of $11.4 billion, or 90 cents per share, on revenue of $89.8 billion in 2013.