Make us your home page
Instagram

Citigroup, Bank of America report profits but face challenges, analysts say

NEW YORK — The big banks are making big money again, but they won't be healthy again as long as they have to deal with a recession and customers who are defaulting on mortgages and credit cards.

The impressive numbers include a $3 billion second-quarter profit for Citigroup and a $2.4 billion profit for Bank of America, both announced Friday. They follow similarly robust earnings for Goldman Sachs and JPMorgan Chase.

That the banks managed to turn a profit at all is remarkable. Just 10 months ago, many of them looked to be on the verge of collapse. The stock market staged a huge rally this week, driven by the signs of health in banking.

But Bank of America CEO Ken Lewis had some sobering words during a conference call with Wall Street analysts after his company's results were released Friday: "Profitability in the second half of the year will be much tougher than the first half."

Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. earned profits this spring largely on investment banking and trading — not traditional banking businesses, which still look shaky. Citi benefited from selling its majority stake in the Smith Barney brokerage.

Strip away those money-makers, and the banks have to rely on customers who are losing their jobs or earning less money. The banks will suffer as long as their customers do.

Bank of America, JPMorgan Chase and Citigroup Inc. all reported that they lost more money on loans during the second quarter. Bank of America alone set aside $13.4 billion to cover loan losses. But the banks also saw signs that loan delinquencies were starting to stabilize.

Celent analyst Isabel Schauerte said Bank of America's earnings tell the story of the financial industry.

"B of A's results are the bellwether of where Main Street is headed. Measured by credit losses, a moderation of default rates is not in sight," Schauerte said. "For the investment banking business of B of A, in contrast, the worst days seem to have passed."

The banks that reported earnings this week cited similar trends:

Mortgages: Bank of America's second-quarter revenue was bolstered by a spike in mortgage refinancings as interest rates tumbled early in the quarter. But rates have been climbing, and analysts expect that surge in refinancings to taper off. And more people are defaulting on mortgages.

Credit cards: Credit card losses tend to track the unemployment rate, and banks are expected to keep losing money on credit cards as more people lose their jobs.

Investment banking: By far the quickest recovery in the banking business has come in the investment banking sector. Some of the rebound came from the big stock market rally this spring.

Commercial real estate: While home foreclosures are increasing, the commercial real estate market is expected to keep causing loan losses for banks. Rising store and office vacancies are cutting into landlords' and developers' cash flow, and leading them to default on their mortgages.

Citigroup, Bank of America report profits but face challenges, analysts say 07/17/09 [Last modified: Friday, July 17, 2009 10:01pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Associated Press.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. In advertising, marketing diversity needs a boost in Tampa Bay, nationally

    Business

    TAMPA — Trimeka Benjamin was focused on a career in broadcast journalism when she entered Bethune-Cookman University.

    From left, Swim Digital marketing owner Trimeka Benjamin discusses the broad lack of diversity in advertising and marketing with 22 Squared copywriter Luke Sokolewicz, University of Tampa advertising/PR professor Jennifer Whelihan, Rumbo creative director George Zwierko and Nancy Vaughn of the White Book Agency. The group recently met at The Bunker in Ybor City.
  2. Tampa Club president seeks assessment fee from members

    News

    TAMPA — The president of the Tampa Club said he asked members last month to pay an additional assessment fee to provide "additional revenue." However, Ron Licata said Friday that the downtown business group is not in a dire financial situation.

    Ron Licata, president of the Tampa Club in downtown Tampa. [Tampa Club]
  3. Under Republican health care bill, Florida must make up $7.5 billion

    Markets

    If a Senate bill called the Better Care Reconciliation Act of 2017 becomes law, Florida's government would need to make up about $7.5 billion to maintain its current health care system. The bill, which is one of the Republican Party's long-promised answers to the Affordable Care Act imposes a cap on funding per enrollee …

    Florida would need to cover $7.5 billion to keep its health care program under the Republican-proposed Better Care Reconciliation Act of 2017.  [Times file photo]
  4. Amid U.S. real estate buying binge by foreign investors, Florida remains first choice

    Real Estate

    Foreign investment in U.S. residential real estate recently skyrocketed to a new high with nearly half of all foreign sales happening in Florida, California and Texas.

    A National Association of Realtors annual survey found record volume and activity by foreign buyers of U.S. real estate. Florida had the highest foreign investment activity, followed by California and Texas. [National Association of Realtors]
  5. Trigaux: Tampa Bay health care leaders wary of getting too far ahead in disruptive times

    Business

    Are attempts to repeal Obamacare dead for the foreseeable future? Might the Affordable Care Act (ACA), now in dire limbo, be revived? Will Medicaid coverage for the most in need be gutted? Can Republicans now in charge of the White House, Senate and House ever agree to deliver a substitute health care plan that people …

    Natalia Ricabal of Lutz, 12 years old, joined other pediatric cancer patients in Washington in July to urge Congress to protect Medicaid coverage that helped patients like Ricabal fight cancer. She was diagnosed with Ewing's sarcoma in 2013 and has undergone extensive treatments at BayCare's St. Joseph's Children's Hospital in Tampa. [Courtesy of BayCare]