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Credit Card Growth Fuels Bank Results

Citigroup and BofA earnings beat forecasts but shares drop amid unease about outlook.

October 20, 2006|From Reuters

The nation's largest banks, Citigroup Inc. and Bank of America Corp., posted higher third-quarter operating profits Thursday, helped by growth in credit cards and other consumer businesses.

However, shares of both companies closed lower, leading a broad decline in the banking sector. Investors fretted about the longer-term implications of rising short-term interest rates as well as weakened lending results at less-diversified rivals such as Washington Mutual Inc.

"Fundamentals for banks are very challenging," said Adam Compton, an analyst at RCM Global Investors in San Francisco. "Even if you're growing loans, it's not helping revenues because funding costs have risen so much."

Citigroup closed down 32 cents at $49.87, while Bank of America fell 55 cents to $53.26.

Profit from continuing operations at New York-based Citigroup rose 6% to $5.3 billion, or $1.06 a share, from $4.99 billion, or 97 cents, a year earlier. Analysts polled by Reuters Estimates on average forecast core profit of $1.03 a share.

Revenue was little changed at $21.42 billion, falling short of forecasts of $22.16 billion, but credit card revenue increased 8%. Expenses rose 5%.

Analysts were surprised at the weakness in investment banking. Revenue from fixed income markets fell 16% and investment banking revenue was little changed.

Citigroup's net income declined 23% to $5.51 billion, or $1.10 a share, from $7.14 billion, or $1.38, reflecting a year-earlier gain from selling an insurance unit to MetLife Inc.

Chief Executive Charles Prince is under pressure to boost the stock, reenergize the bank's flagging U.S. consumer business and control. U.S. consumer profit grew 23% to $2.24 billion, although revenue rose just 1%.

"Driving [U.S. 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 wants Citigroup to grow internationally but rejected takeover speculation involving Britain's Barclays and France's Societe Generale.

Net income for Charlotte, N.C.-based Bank of America rose to $5.42 billion, or $1.18 a share, from a restated $3.84 billion, or 95 cents, a year earlier.

Excluding merger costs, profit totaled $5.59 billion, or $1.22 a share. Analysts had forecast $1.16.

The bank added 744,000 checking accounts, and card services revenue rose 137%. Bank of America bought MBNA Corp. on Jan. 1 to become the largest U.S. credit card issuer.

Results included a $720-million gain from the sale of a unit to Brazil's Banco Itau and $469 million in securities losses.

Revenue increased 32% to $18.65 billion, topping forecasts of $17.97 billion. Costs rose 22%.

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