- The Washington Times - Friday, July 17, 2009

NEW YORK (AP) — Citigroup Inc. surprised Wall Street Friday, reporting a $3 billion second-quarter profit instead of the big loss analysts expected.

Citigroup joined four other big banks in reporting strong results for the quarter. Bank of America recently reported a $2.42 billion second-quarter profit even as losses from failed loans continued to rise.

Bank of America said Friday its earnings after payment of preferred dividends were down at 33 cents per share compared with a profit of $3.22 billion, or 72 cents per share, a year earlier. The earnings beat the forecasts of analysts surveyed by Thomson Reuters, who forecast Bank of America would earn 28 cents per share.

Bank of America, like Goldman Sachs Group Inc. and JPMorgan Chase, said it had a handsome profit from its trading business. The company acquired Merrill Lynch & Co. early this year.

But, like JPMorgan, it did report continuing losses from failed loans. Bank of America said it recorded a $13.4 billion provision for loan losses during the second quarter as consumers struggled with debt amid rising unemployment.

After paying preferred dividends, Citigroup earned $3 billion, or 49 cents per share. It lost $2.59 billion, or 55 cents per share, during the same quarter last year.

Analysts forecast a loss of 37 cents per share for the quarter.

Citi announced its results shortly after Bank of America Corp. also beat expectations, reporting it earned $2.42 billion for the quarter.

However, Citi’s profit was not driven by improved trading like other banks, and instead came from the gain on the sale of its Smith Barney unit and the increasing values of some of its riskier assets that had plunged during the credit crisis. The New York-based bank recorded an after-tax gain of $6.7 billion on the sale of a majority stake in its Smith Barney brokerage unit to Morgan Stanley.

Citi has been among the hardest hit by the credit crisis and ongoing recession. It has received $45 billion in funds from the government and guarantees to protect against losses on more than $300 billion in risky assets. The government is in the process of acquiring a 34 percent stake in the bank as part of a broader debt exchange program.

The exchange program will provide Citi a better mix of capital to withstand additional loan losses and further weakening in the economy. By turning preferred shares into common stock, Citi also no longer has to pay out dividends on the preferred shares, thus helping improve its cash flow.

Like other large retail banks, such as Bank of America, Citi is still facing mounting loan losses as the recession continues. Citi set aside $12.68 billion to cover loan losses during the second quarter, compared with $7.1 billion during the year-ago period.

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