Jan. 17 - Earnings are a reminder that major banks like Citigroup and Bank of America are still cleaning up the problems of their past. Bobbi Rebell reports.
Costly charges overshadowed profits at both Bank of America and Citigroup in a quarter filled with litigation, layoffs and mortgage write-offs Bank of America profits plunged 63 percent after it took about $5 billion dollars of mortgage-related charges- the news weighed on the stock in Thursday's trading. Citi's profits were hit by more than $2 billion dollars of costs for layoffs and lawsuits. Earnings missed forecasts, and the stock gave back recent gains- as new CEO Michael Corbat said the bank needs to do better for shareholders. Fitch Ratings' Joo-Yung Lee: SOUNDBITE: JOO-YUNG LEE, MANAGING DIRECTOR, FINANCIAL INSTITUTIONS, FITCH RATINGS (ENGLISH) SAYING: "I think with both banks there was clearly a lot of noise from charges. Citi I think disappointed a bit. Their core earnings when you take out those charges was slightly weaker but what we've seen, and I think one of the big factors, is cost has gone up partly because their restructuring. And then you still have some of the legacy issues with Citi holdings." But there were signs of things improving as well. Citi says margins should hold steady next year- addressing fears falling rates could crimp the profitability of lending. At Bank of America earnings did beat forecasts- and they are growing their loan business. Mortgage volume jumped 42 percent from a year ago. And because mortgage delinquencies have gone down- it's been able to cut back on workers that help borrowers who are behind on their payments. But while it's a new year- old problems will still haunt these banks. SOUNDBITE: JOO-YUNG LEE, MANAGING DIRECTOR, FINANCIAL INSTITUTIONS, FITCH RATINGS (ENGLISH) SAYING: "I think that the earnings picture will probably not be great. I think that there is a lot of uncertainty in the macro environment so when we look at fiscal issues, those still have to get resolved and housing is still pretty fragile, so that could be a wildcard. And I think what you are seeing is a lot of "NIM" compression from the low interest rate environment so you are going to see continued pressure on earnings from that." But if that macro-environment does continue to improve, the financial sector might be at least worth a look for 2013. Bob Doll of Nuveen Asset Management: SOUNDBITE: ROBERT DOLL, CHIEF EQUITY STRATEGIST, NUVEEN ASSET MANAGEMENT (ENGLISH) SAYING: "There's probably more gains to come if the market is up, financials will be as well but I don't think they lead the pack this year." For now, investors patience is being tested. This is the third year in a row that Citi's 4th quarter results have missed forecasts.