Last week, several banks posted their quarterly earnings. Let’s take a look at three of them that seem to be recovering from the financial crisis: Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C) and Goldman Sachs Group, Inc. (NYSE:GS).
Bank of America Corp (NYSE:BAC) posted an outstanding $2.6 billion (or $0.20 per share) in net income for the first quarter of 2013. This is a 400% increase from the first quarter of 2012. But net interest income fell to $10.9 billion, a 1% decrease from Q1 2012. This means that the bank earned less money from lending and investing its deposits.
B of A stated that the decrease owed to the current low-interest-rate environment. These results lagged analysts’ estimates, which predicted $0.23 per share and it was followed by a share price drop of 4.3% in early trading session.
The bank showed an increase in total revenue of 5% to $23.7 billion from the first quarter 2012 mainly due to an improved trading performance. However, its consumer and mortgage segments showed a revenue decline. B of A is still suffering the costs of its ill-fated Countrywide Financial acquisition. It has settled a lawsuit claim regarding home loans with several pension funds for approximately $500 million. Its litigation costs were $881 million in the first quarter of 2013.
Citigroup Inc (NYSE:C): Superb Profits This Quarter
Citigroup Inc (NYSE:C) has certainly recovered from the financial crisis, posting its highest profits for the last three years this quarter.
Its net income for the first quarter rose 30% from the previous year to $3.8 billion. Its revenue also increased 3% from the prior-year period to $20.8 billion. This gain was mainly boosted by an improvement in its investment banking segment and fixed-income trading.
Another aspect that helped that revenue increase was the improvement in credit quality. Loan loss reserves fell 44% year over year, to $652 million.
The bank is also well-capitalized: Its Tier 1 common capital ratio increased to 9.3% from a previous 8.7%, indicating that it has made progress increasing capital requirements to meet the regulators’ new target for financial strength. Those capital requirements are important, because the Federal Reserve could now allow Citi to present a buyback share plan that might improve the value of current shareholders’ positions.
Goldman Sachs Group, Inc. (NYSE:GS) Must Reduce Operating Expenses
Goldman Sachs Group, Inc. (NYSE:GS) has posted $10.1 billion in revenues for the first quarter of 2013, almost flat compared to first quarter 2012. Solid equity and debt underwriting helped boost its investment banking business 36% from the first quarter 2012 to $1.6 billion. Sales from its institutional client services, which account for almost half of its revenue, decreased 10% to $5.1 billion from the first quarter of 2012.
Its lending and investing business did help the firm raise $2 billion (including the ICBC and Facebook Inc (NASDAQ:FB) stake sale). But this one-time event may not generate the same money on the next quarters.
Goldman Sachs Group, Inc. (NYSE:GS) will have to further reduce its biggest expense: compensation. It amounted to $4.3 billion in the first quarter of 2013 — unchanged from the prior-year period — and accounted for 43% of the revenue for that period, a higher number than in previous years. Moreover, operating expenses increased 36% to $6.7 billion for this quarter from the fourth quarter of 2012.
Final Comment
Bank of America Corp (NYSE:BAC) is still trying to clean its balance sheet. Brian Moynihan, the bank’s CEO, has done an excellent job so far, but most analysts believed this was not enough for this quarter. If this strategy continues to show improvements, the company could enjoy very good upside and future growth. It’s also implementing the “New BAC initiative,” which is expected to cut expenses around $8 billion on an annual basis.
Citigroup Inc (NYSE:C) has made efforts to increase its revenue this quarter. It will still have to look at its balance sheet’s credit quality, which could inflict pain by assigning more provisions for loan loss reserves. On the other hand, it will have to maintain the current net interest margin (the difference between what a firm pays in deposits, and what it charges for loans) at roughly 2.9%. This will be a difficult task, as low interest rates, the legacy costs of its Citi Holdings segment, and new regulations demanding greater capital reserves could further exert pressure on the company’s earnings.
Goldman Sachs Group, Inc. (NYSE:GS) seemed to have a stable quarter. Its revenues were flat compared to the first quarter of 2012, and it was helped by an excellent quarter’s worth of underwriting. However, it will have to try and fix the decline in its institutional client segment, a very important part of its revenue mix, and reduce operating expenses that could impact future growth prospects. If Goldman doesn’t improve on these fronts in the next quarter, it may suffer a decline in total revenue.
The article What You Can Learn From 3 Banks’ Earnings originally appeared on Fool.com and is written by Damian Illia.
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