N@N

Citigroup, JPMorgan Chase & Company, Goldman Sachs, Bank of America and Wells Fargo

^{Published on 2010-07-19 14:10:43 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Citigroup Inc. (NYSE: [ C ]), JPMorgan Chase & Company(NYSE: [ JPM ]), Goldman Sachs (NYSE: [ GS ]), Bank of America (NYSE: [ BAC ]) and Wells Fargo (NYSE: [ WFC ]).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: [ http://at.zacks.com/?id=4579 ]

Here are highlights from Fridaya™s Analyst Blog:

Citi Posts Profit, Tops Estimates

Citigroup Inc. (NYSE: [ C ]) reported second quarter earnings of 9 cents per share, ahead of the Zacks Consensus Estimate of 5 cents. However, the results were below the prior quarter earnings of 14 cents and the year-ago quartera™s earnings of 51 cents.

Results reflect an improvement in the credit quality and lower loan loss provisions. While Citia™s results in the first quarter significantly benefited from strong trading revenues, as expected, the market declines negatively impacted the revenues from its trading business in the second quarter.

Citi reported a net profit of $2.7 billion, compared with $4.4 billion in the prior quarter and $4.3 billion in the year-ago quarter. Provisions for credit losses and for benefits and claims of $6.7 billion declined $2.0 billion or 23% sequentially. This represents the lowest level since the third quarter of 2007. Citi recorded a net release of reserves for loan losses and unfunded lending commitments of $1.5 billion in the reported quarter, compared with a $53 million net reserve release in the prior quarter.

Credit Quality

Credit quality metrics improved in the quarter. Total non-accrual assets as of June 31, 2010 were $26.5 billion (1.37% of total assets), down from $30.2 billion (1.51%) in the prior quarter and $29.3 billion (1.58%) in the year-ago quarter. Allowance for loan losses as a percentage of total loans decreased to 6.72%, compared with 6.80% as of March 31, 2010, but above 5.60% as of June 31, 2009.

Behind the Headline Numbers Total revenues were $22.1 billion, down from $25.4 billion in the prior quarter and $30.0 billion in the year-ago quarter. As expected, the company reported a drop in securities and banking and Special Asset Pool revenues. However, consumer banking revenues were good.

Net interest revenue for the quarter was down 4% but increased 9% year over year to $14.0 billion. Continued de-risking of the loan portfolios resulted in a drop in net interest margin to 3.15% from 3.32% in the prior quarter and 3.24% in the year-ago quarter. Non-interest income was $8.0 billion compared with $10.9 billion in the prior quarter and $17.1 billion in the year-ago quarter.

Expenses were $11.9 billion, up 3% from the prior quarter, primarily driven by the U.K. bonus tax of $404 million. Though the company experienced an expense reduction in Citi Holdings, it was more than offset by continued investments in Citicorp businesses. Expenses were, however, down 1% from the year-ago quarter.

Capital Ratios Citia™s Tier 1 capital ratio came in at 12.0% compared with 11.3% in the prior quarter. Tier 1 common ratio was 9.7%, up from 9.1% in previous quarter. Book value per share was $5.33, up from $5.28 in the prior quarter, while tangible book value per share was $4.19, up from $4.09 in the prior quarter. During the quarter, return on common equity (ROE), however, deteriorated to 7.0% from 12.0% in the prior quarter and 14.8% reported in the year-ago quarter.

Competitor Performance

Yesterday, JPMorgan Chase & Company(NYSE: [ JPM ]) reported its second quarter results. Earnings came in at $1.09 per share, significantly ahead of the Zacks Consensus Estimate of 71 cents.

The encouraging results were primarily supported by a slowdown in loan loss reserves. However, similar to Citi, JPMorgan too experienced a pressure on trading and investment banking revenues and a $550 million charge related to the U.K. bonus tax.

Subsequent to the Congressa™ approval, the financial reform bill is expected to restrict proprietary trading of commercial banks partially. Additionally, dealing in derivatives, which are used to hedge risk or speculate the future value of assets, would also be limited.

We expect these actions to have a significant impact on the profitability of a number of commercial banks. Beside Citi, these banks include JPMorgan, Goldman Sachs (NYSE: [ GS ]), Bank of America (NYSE: [ BAC ]), Wells Fargo (NYSE: [ WFC ]) and others.

Our Take

In an effort to wind down its stake in Citi, the U.S. Treasury recently announced the sale of 1.1 billion of its shares in the company. The sale also marks the completion of its second trading plan to shed Citigroup shares, where Morgan Stanley was the sales agent. Following the sale, the Treasury has around 5.1 billion shares or a 17.5% stake in Citigroup still left. The Treasury plans to wrap up the sale by this year end.

As part of its restructuring efforts, Citi has recently announced that it is divesting its private equity fund of funds, mezzanine and co-investment businesses to StepStone Group LLC and Lexington Partners. Citi aims to de-leverage Citi Holdings, which consists of Citia™s non-core assets through a number of steps that include joint ventures, divestitures, and asset run-offs. As a matter of fact, the company has already announced the sale of a number of its businesses within Citi Holdings.

Though Citigroupa™s restructuring efforts are welcome, the sluggish rate of economic recovery and the high level of unemployment are expected to be a drag on its earnings in the upcoming quarters. In its core business, Citicorp remains attractive. However, the obscurity around the valuation of Citi Holdings will be a headwind in the near term.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: [ http://at.zacks.com/?id=5514 ].

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: [ http://at.zacks.com/?id=5516 ]

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at [ http://at.zacks.com/?id=4580 ].

Visit [ http://www.zacks.com/performance ] for information about the performance numbers displayed in this press release.

Follow us on Twitter: [ http://twitter.com/zacksresearch ]

Join us on Facebook: [ http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts ]

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.