Bank of America and Citigroup Under Scrutiny: Are Banking Giants on a Conservative Approach to Q4 Earnings?

    Bank of America and Citigroup Under Scrutiny: Are Banking Giants on a
                    Conservative Approach to Q4 Earnings?

  PR Newswire

  LONDON, January 23, 2013

LONDON, January 23, 2013 /PRNewswire/ --

Earnings season is in full swing and major financial services giants are
already out with their numbers. The banking sector is still struggling with
the ghosts of its past as major banks are taking steps to hive off their loss
making assets and cutting costs. However, the sector is still taking cautious
approach as it looks to layoffs and trimming its work force to achieve higher
efficiency. StockCall analysts recently posted two technical analysis reports
on Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C) which are
available upon registration at http://www.stockcall.com/register

While corporations like Goldman Sachs are paring down their investment banking
operations, banks like Wells Fargo are reducing their reliance on mortgage
business. Bank of America reported its net income for the fourth quarter at
$732 million, a sharp fall from the $2 billion it had earned for the fourth
quarter last year. However, it managed to increase its full year net income
from $1.4 billion to $4.2 billion. Similarly, Citigroup reported higher net
income for the quarter, but fell short of market expectations. Its net income
for the quarter was reported at $1.2 billion. Our technical analysis on Bank
of America can be accessed by signing up today at
http://www.StockCall.com/BAC012313.pdf 

Bank of America Cuts Costs

One common feature for both the companies' quarterly results was the legal
mess they were/are in. Bank of America had to recognize $2.7 billion in
settlement charges they have to pay Fannie Mae for warranties and
representation fees, which had deep negative impact on its numbers for the
fourth quarter of the year. The banking company is right on its way to
cost-cutting. It is looking to slash its costs by $5 billion by the end of
this calendar year, as a part of its NEW BAC initiative. While cost-cutting
measures will certainly add to its bottom-line, a major chunk of this exercise
will come from layoffs, which may not be so good for its employee morale. It
is also likely to benefit from the rather stabilized economy as the bank will
need to make lower provisions for loan losses.

Bank of America stock grew over 50% last year and going by its Q4 numbers, it
can be assumed that it is likely to retain the trend in the current year as
well. The bank is in stable financial position as it boasts of better than
industry ratios for loan and lease provisions. The bank's gamble on Merrill
Lynch is also paying well as its brokerage assets grew to $75.9 billion in
2012.

Citigroup Enters New Era with Mike Corbat

Citigroup's quarterly numbers were highly anticipated as it was the bank's
first quarter under the new CEO. Citigroup's erstwhile CEO Vikram Pandit had
been lauded for steering the bank through tumultuous times, but it seems like
the ex-CEO took a couple of shortcuts for achieving these ends. The new CEO is
now entrusted with the task of setting those wrongs right. Mike Corbat, the
new captain of the ship, is looking to cut costs and while its cost-cutting
targets are not as aggressive as Bank of America, still Citigroup is looking
to pare down its costs by $900 million in 2013. While its Q4 numbers
disappointed, but it was mainly due to conservative loan loss reserves and
repositioning charges. The impact of these strategic changes will be visible
in coming quarters only.

Both Citigroup and Bank of America are getting rid of loss making assets.
While Bank of America is going conservative with its mortgage business,
Citigroup is reducing its Citi Holdings assets. While both these banks are
still struggling with their legacy issues, their overall financial robustness
is constantly improving. Late last year, Citigroup's CFO also let it slip that
the company is looking to return capital to its shareholders. In the
short-term, Citi may have to see some tough time as it takes some stringent
measures to ensure its long-term viability, but in the medium run, such
measures are likely to bring forth positive results.

Footer:

1.Citigroup Inc. Technical Analysis [
    http://www.StockCall.com/CitigroupInc012313.pdf ]

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