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Bank of America and Citigroup surpass analysts' predictions

Lower interest rates bolstered second-quarter results at Citigroup and Bank of America even as their businesses showed some weakness from the softer economy.

Bank of America reported earnings of $2.02-billion, or $1.24 a diluted share, compared with $2.06-billion, or $1.23 a share in the period a year ago. This year's results were 6 cents ahead of analysts' reduced expectations, according to Thomson Financial-First Call.

"The consumer side has been very strong," Bank of America chief financial officer James Hance said. "For banks without exposure to that business, it can be a problem. It helps cover costs on the corporate side."

The bank's lending business has been hurt in recent quarters by large increases in problem loans. Bank of America's non-performing assets amounted to 1.6 percent of total loans in the second quarter, compared with 0.97 percent a year earlier.

Still, the bank's asset quality held up better than expected in the latest quarter, said Judah Kraushaar, an analyst at Merrill Lynch. Bank of America's non-performing assets increased by 5 percent from the first quarter, which is much better than the 15 percent to 20 percent increase he had forecast.

Bank of America has successfully capitalized on consumers' hunt for a safe haven from the stock market. The bank's average outstanding deposits increased by 3 percent, with money market savings accounts rising 19 percent.

A benefit of lower interest rates was an increase in mortgage financings, which rose 26 percent.

Bank of America also gained market share in the corporate bond market. Its share of high yield bond underwritings nearly doubled from a year ago, according to Thomson Financial Securities Data. For the first half of the year, Bank of America moved to fifth place, with 9.4 percent of the market, compared with ninth place, with 5 percent of the market a year ago.

At Citigroup, net income was $3.54-billion, or 69 cents per share, up from $3.34-billion, or 65 cents per share, a year ago. Its earnings before non-recurring charges came to 74 cents a share, a penny ahead of analysts' expectations.

Citigroup benefited from its continued focus on cost control, with expenses growing by just 1 percent. Revenues increased 8 percent. The bank also announced a $133-million after-tax charge "for severance and other costs in connection with staffing reductions," signaling cost cuts to come.

"This management team knows how to manage costs when the situation calls for it," said David Berry, head of research at Keefe, Bruyette & Woods.

New York-based Citigroup reported strong results in its consumer businesses, with earnings before recurring charges up 40 percent from a year ago. The bank benefited from increases in mortgage financing and its credit card business.

Earnings at Citigroup's global corporate and investment banking division were $1.27-billion, up just 2 percent from a year earlier. Richard Strauss, an analyst at Goldman, Sachs & Co., said that Citigroup's performance looks reasonably strong compared with some others on Wall Street. Last month, Merrill Lynch warned that its net income would fall at least 25 cents a share short of what analysts had expected.

Separately, the Federal Reserve approved Citigroup Inc.'s $12.5-billion purchase of Grupo Financiero Banamex-Accival and Banco Nacional de Mexico, the first big acquisition in Mexico by a U.S. bank.

The Fed's board of governors voted Monday to approve the deal. The merger, announced in May, has been approved by Mexican regulators subject to certain conditions.

Shares of Bank of America, based in Charlotte, N.C., rose $1.13 to $61.38 a share, while Citigroup was up 29 cents to $49.15 a share.

_ Information from the Associated Press was used in this report.