Citigroup, Bank of America report higher profits

NEW YORK - Citigroup and Bank of America, the largest US banks, today posted higher third-quarter profits, helped by growth in credit cards and other consumer businesses.

Shares of both companies fell, amid broad declines in the banking sector as investors fretted about rising interest rates and weakened lending results at less-diversified rivals such as Washington Mutual Inc.

"Fundamentals for banks are very challenging," said Adam Compton, research analyst at RCM Global Investors in San Francisco, which invests more than US$120 billion ($183.2 billion). "Even if you're growing loans, it's not helping revenues because funding costs have risen so much."

In afternoon trading, shares of Citigroup were and Bank of America were both down about 1 per cent. The Philadelphia KBW Bank Index was also down 1 per cent.

Profit from continuing operations at New York-based Citigroup rose 6 per cent to US$5.3 billion, or US$1.06 per share, from US$4.99 billion, or US97 cents, a year earlier.

Several analysts estimated core profit at US$1.01 per share, excluding a tax benefit. Analysts polled by Reuters Estimates on average forecast US$1.03.

Revenue was little changed at US$21.42 billion, short of forecasts for $22.16 billion, while expenses rose 5 per cent.

Analysts were surprised at weakness in investment banking, where revenue from fixed income markets fell 16 per cent and from investment banking revenue was little changed.

"We've grown frustrated by Citigroup," said Michael Mullaney, who helps invest $10 billion at Fiduciary Trust Co in Boston. "It's such a gigantic company that it's hard to create new value for shareholders."

Net income fell 23 per cent to US$5.51 billion, or US$1.10 per share, from US$7.14 billion, or US$1.38, reflecting a year-earlier gain from selling an insurance unit to MetLife Inc.

Chief Executive Charles Prince is under pressure to to boost the stock, re-energize the bank's struggling US consumer business, and keep costs down. US consumer profit rose 23 per cent to US$2.24 billion, though revenue rose just 1 per cent.

"Driving (US consumer) revenue growth is absolutely key for Citigroup to be a growth company," Prince said. "I'm cautiously optimistic that the trend is a very positive one."

Prince rejected takeover speculation involving Britain's Barclays Plc and France's Societe Generale. He said: "Buying a big bank in western Europe is not on my agenda."

Net income for Charlotte, North Carolina-based Bank of America rose to US$5.42 billion, or US$1.18 per share, from a restated US$3.84 billion, or US95 cents, a year earlier.

Excluding merger costs, profit totaled US$5.59 billion, or US$1.22 per share. Analysts on average forecast US$1.16.

The bank added 744,000 new checking accounts, and card services revenue rose 137 per cent. Bank of America bought MBNA Corp on January 1 to become the largest US credit card issuer.

Results included a US$720 million gain from the sale of a unit to Brazil's Banco Itau, and US$469 million of securities losses. Revenue rose 32 per cent to US$18.65 billion, topping forecasts for US$17.97 billion. Costs rose 22 per cent.

Profit fell 4 per cent in the corporate and investment bank, excluding the Brazil transaction, hurt by higher personnel costs and lower capital markets and advisory fees.

Improved card results helped offset shrunken loan margins.

Chief Financial Officer Alvaro de Molina said the rate environment, including a flat to inverted yield curve caused by the convergence of long- and short-term rates, may persist well into 2007. Prince also said the curve may remain "flat."

Washington Mutual late Wednesday reported a 9 per cent drop in quarterly profit in part on lower home mortgage demand.

Among banks reporting on Thursday, Bank of New York Co said operating profit rose 10 per cent. Rate pressures helped lower profit at Winston-Salem, North Carolina's BB&T Corp, Cincinnati's Fifth Third Bancorp and Detroit's Comerica Inc.

- REUTERS