NEW YORK, (Reuters):
CITIGROUP INC. and Bank of America Corp. on Monday posted higher-than-expected second-quarter profits, helped by gains in credit cards, mortgage lending and investment banking.
"The consumer has been the strong point throughout this weak economy, and it looks like the consumer is getting stronger. That's good news for banks," said Wayne Bopp, an analyst for Fifth Third Investment Advisors in Cincinnati, which invests US$31 billion and owns both banks' shares.
The nine other largest U.S. banks are set to report earnings later this week. Analysts say an improving economy, rising stocks and increased lending as interest rates sit near 45-year lows should fuel profits.
Citigroup shares closed Monday on the New York Stock Exchange at us$47.12, up 97 cents, or 2.1 per cent, while Bank of America shares closed at US$83.46, up 58 cents, or 0.7 per cent. The Standard & Poor's banks index .GSPBK rose 1.7 per cent.
Citigroup, the world's No. 1 financial services company, said profit rose 5 per cent to US$4.3 billion, or 83 cents per share, from US$4.08 billion, or 78 cents, a year earlier.
Citigroup also raised its dividend 75 per cent, its second increase this year.
Analysts polled by Reuters Research, a unit of Reuters Group Plc, on average expected a profit of 80 cents per share.
The rising earnings come as Chairman Sanford "Sandy" Weill tries to expand the company's consumer base, while maintaining its position as the top global stock and bond underwriter.
"We really had a very good quarter," Weill said in a conference call. "The outlook for the second part of the year and going forward is also beginning to strengthen."
Revenue rose 8 per cent to $19.4 billion and assets rose 9 cent to US$1.19 trillion.
Consumer income rose 18 per cent to US$2.3 billion, as retail banking income gained 63 percent to US$1.05 billion. New mortgage volume doubled to US$23.5 billion. Investment banking income rose 2 per cent to US$1.36 billion and income from non-U.S. operations rose 8 per cent to US$1.33 billion.
"Things you expected to work were working. Things you expected to stay stable stayed stable," said Bob Maneri, an analyst at Victory Capital Management in Cleveland, whose $62 billion of assets include Citigroup shares.
Weill said the new 35 cents per share dividend, up from 20 cents, reflects benefits from the lower 15 per cent dividend tax rate signed into law in May by President George W. Bush.
Citigroup also said it is shifting much of its equity-based compensation for employees to restricted stock from stock options. On July 9, Microsoft Corp. said it would stop awarding stock options to employees and instead issue direct stock grants that will be expensed.
BANK OF AMERICA
Bank of America, the No. 3 U.S. bank, said profit rose to US$2.74 billion, or $1.80 per share, from US$2.22 billion, or $1.40 per share. Analysts polled by Reuters Research on average expected a profit of $1.57 per share.
The Charlotte, North Carolina-based bank, which last month increased its dividend 25 per cent, reported gains in its mortgage, debit and credit card, deposit and loan businesses. Mortgage banking income quadrupled to US$559 million as originations reached a record US$40 billion.
Defaults were low throughout its consumer lending business, including credit cards, it said.
Card income rose 23 per cent to US$762 million, while investment banking income rose 5 per cent to US$488 million and income from asset management surged 118 per cent to US$144 million. Assets rose 20 per cent to US$775 billion.