It’s not a good time for most banks. Many small banks, and a few big ones, collapsed during the financial crisis of 2008, and the survivors face a litany of woes. Regulators have allowed banks to “extend and pretend,” as critics put it. That means to extend the payback time on troubled loans and to pretend that they will indeed be repaid.
Giants such as Bank of America (BAC) and Citigroup (C) are among those banks. They still have a slew of soured assets, particularly mortgages. That’s going to make it difficult for them to maintain profitability for some time.
Bank of America
The largest U.S. bank by assets registered a loss of more than $2.39 billion in its home-loan business during the first quarter as revenue dropped and costs rose. The continuing controversy over unwarranted foreclosures is costing the bank big time.
Things are so bad for Bank of America that the Federal Reserve rejected a plan to increase its dividend during the second half of this year, even as the Fed approved dividend hikes at other major banks. The Fed is likely concerned about BofA’s mortgage woes.
Analysts at Citigroup recently cut their target price for BofA shares to $17 from $18. Meanwhile, analysts Morgan Stanley reduced their earnings estimates for the bank.
The third-largest U.S. bank reported that its profit plummeted 32 percent in the first quarter to $3 billion from $4.4 billion a year earlier. Revenue slid 22 percent to $19.7 billion. A decline in loans, weak trading results, and surging costs did the harm.
Citigroup's investment-banking business, which includes merger-and-acquisition work as well as stock-and-bond sales, posted a revenue drop of 20 percent to $851 million from a year earlier. The bank stumbled to seventh place from third in the rankings for advising on mergers and acquisitions.
Bank of America Merrill Lynch analyst Guy Moszkowski pointed to another weakness in the earnings report: "Expense growth in the emerging markets continued to exceed revenue growth,” he wrote. He downgraded Citi shares to neutral last month.
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