Bank of America, Citigroup Fall as Loan Books

Bank of America, Citigroup Fall as Loan Books, Interest Shrink

By David Mildenberg and Bradley Keoun

July 16 (Bloomberg) -- Bank of America Corp. and Citigroup Inc. fell in New York trading after profit reports showed their loan books shrinking, a sign volatile markets and a stalling U.S. economy may be keeping borrowers away.

Bank of America, based in Charlotte, North Carolina, declined 8.3 percent, the most in more than a year, in New York Stock Exchange composite trading at 11:33 a.m. New York-based Citigroup fell 3.7 percent.

Consumers and companies are balking at taking on more debt amid Greece’s debt crisis and concern the U.S. economic rebound will stall. While Citigroup and Bank of America have slashed costs for bad loans, second-quarter revenue fell in business and consumer lending, trading and underwriting.

“These companies are a good proxy for a sluggish economy,” David Ritter, an analyst at Argus Research, said in a Bloomberg Radio interview. “Loan numbers continue to decline.”

Total loans at Bank of America, the largest U.S. lender, fell 2 percent from the first quarter to $956.2 billion, pushing down interest income 6.2 percent, the company said in a statement. At Citigroup, the nation’s third-biggest bank, loans shrank 4 percent to $646 billion and interest income declined 3.6 percent.

“I don’t see a great deal of demand in the near term,” Citigroup Chief Financial Officer John Gerspach said on a conference call with reporters. Corporate borrowers are “sitting on the sidelines” and “almost every major company” has a “decent amount of cash sitting in their balance sheet,” Gerspach said.

‘Muddling Along’

Bank of America Chief Executive Officer Brian Moynihan said the economy is in a period of “muddling along.”

“It’s going to take a few more quarters for you to see sustained activity,” Moynihan, 50, said in an interview today on Bloomberg TV. “We’re sort of in a state of moving through the muck, and yet we’re moving in the right direction.”

Moynihan and his counterpart at Citigroup, Vikram Pandit, 53, are rebuilding their banks’ image with consumers, Congress and regulators and trying to reverse losses from credit cards and home loans. They are also contending with financial regulations approved this week by the U.S. Senate in the largest rewrite of Wall Street rulemaking in seven decades.

A decline in the U.S. jobless rate to 9.5 percent in June helped borrowers keep up with payments.

While JPMorgan Chase & Co. bought back about $500 million of shares over the past month to return excess capital to shareholders, Moynihan and Citigroup’s Gerspach said it will be several quarters before the two companies can do any share purchases.

Net Income

Bank of America’s second-quarter net income dropped to $3.12 billion, or 28 cents a share before preferred dividends, from $3.22 billion, or 33 cents, in the same period a year earlier. The average estimate of 24 analysts surveyed by Bloomberg was 23 cents, adjusted for one-time items. Revenue declined 11 percent to $29.15 billion from a year earlier.

Citigroup’s second-quarter net income was $2.73 billion, down from $4.39 billion in the same period a year earlier, when the company had a $6.7 billion gain from the sale of a stake in Smith Barney. The per-share profit was 9 cents, Citigroup said today in a statement, exceeding the 5-cent average estimate of 18 analysts in a Bloomberg survey.

Citigroup beat the estimates because of lower-than-expected costs for bad loans, including a $1.5 billion release from loss reserves, Barclays Capital analyst Jason Goldberg wrote in a report.

Asset Pool

Citigroup also got $599 million of mark-ups on loans and securities in a “special asset pool” of trading positions left over from before the credit crisis. Citigroup booked a $447 million gain from writing down the value of its own debt, under an accounting rule that allows companies to profit when their creditworthiness declines. The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit.

About $1.2 billion of Bank of America’s revenue came from writing down the value of obligations assumed from its purchase of Merrill Lynch & Co., according to the bank’s CFO, Charles Noski.