One Year Since The Crisis- High Credit Cost Continues To Plague The Banking Sector – Part III
Citigroup
Citigroup one of the worst hit banks in the current financial crisis announced a profit of $101 million for the third quarter. This is definitely a reduction from last quarter when the bank had reported profit of $4.28 billion. However last year in the corresponding period the bank had reported a loss of $2.82 billion.
Like the other banks analyzed Citigroup still continues to be plagued by high credit losses. Credit losses were marginally down from $8.4 billion in the second quarter to $8 billion in the third quarter. Managed credit losses at $11 billion was also down from $11.5 billion in the second quarter. The total credit cost at $9.1 billion in the third quarter was lower than $12.7 billion reported in the second quarter.
The bank’s third quarter revenue increased to $20.39 billion as compared to $16.26 billion in the same period a year ago. Citi had received stimulus from the US government to the tune of $45 billion in fresh capital. US government currently hold about 34 per cent stake in the bank.
Citi continues to be popular with its customers as can be seen from the deposit growth of $28 billion in the third quarter from second quarter. As of the end of third quarter, the bank has a deposit base of $833 billion.
Looking forward the bank is focused on sustainable profitability and growth, repaying TARP and providing support in America’s economic recovery.
Bank of America
Bank of America was also impacted by rising losses from consumer and commercial loans. Despite impressive trading and investment banking revenue, the bank announced a third quarter loss of $1 billion. On the positive side the bank’s revenue was higher than last year, motivated by noninterest income growth. Revenue net of interest expense on a fully taxable-equivalent basis increased by 32% to $26.4 billion from $19.9 billion a year ago.
The bank’s non interest income helped by higher trading account profits, investment and brokerage services fees and investment banking income increased to $14.6 billion from $8.0 billion a year earlier. In third quarter provision for credit losses at $11.7 billion though less than the second quarter was $5.3 billion higher than the same period last year.
Segment-wise, deposits net income declined by 49% from 2008 to $798 million. The credit card business also registered a net loss of $1.04 billion from $167 million in the previous year indicating that credit costs continues to be a cause of concern.
Net losses also widened in the Home Loans and Insurance segment to $1.63 billion from last year’s $54 million as credit costs continued to increase. Global Banking net income at $40 million saw a steep decline from $1.02 billion in the prior-year quarter.
Global Markets which had registered a loss of $588 million in the prior-year quarter saw an increase in net income to $2.19 billion thanks to the addition of Merrill Lynch and a favourable trading environment. Global Wealth and Investment Management also saw an increase in net income to $271 million from $80 million a year ago.
In conclusion for these banks some strategies clicked and some didn’t. Overall revenue growth was mainly propelled by non interest income .High credit costs still continues to be a cause of concern indicating that the factors that plunged the economy into recession are still very much at play.
Read more at: One Year Since The Crisis- High Credit Cost Continues To Plague The Banking Sector – Part II
