Bank of America and Citigroup Shares Fall Sharply on Earnings News (BAC, C)

Posted by on Jul 19th, 2010

Shares of Citigroup, Inc (NYSE: C) and Bank of America Corp (NYSE: BAC) fell sharply on Friday after reporting disappointing second quarter earnings results. Bank of America Corp (NYSE: BAC) led the percentage decliners in the DOW 30 closing with a 9.16% loss ending at $13.98 per share. Citigroup, Inc (NYSE: C) fell 6.25% on Friday to $3.90 per share.

Bank of America Corp (NYSE: BAC) said that it made a second quarter profit of $3.12 billion, or $0.27 per share, down from $3.22 billion, or $0.33 per share, during the same period in 2009. The consensus estimate among analysts was for Bank of America Corp (NYSE: BAC) to earn $0.22 per share.

Citigroup, Inc (NYSE: C)’s profits fell 37% compared to Q2 2009 with revenue of $2.7 billion, or $0.09 per share, compared to $4.3 billion, or $0.49 per share, during the same quarter of last year. The consensus estimate for Citigroup, Inc (NYSE: C) was for the company to earn $0.05 per share.

Although both banks topped analysts’ estimates, investors became concerned about bank’s ability to generate revenue growth. “Clearly they both beat on earnings, [but] most of that has to do with credit quality. The concern — and why investors aren’t applauding this — is because revenue is weak, lighter than expected,” said Shannon Stemm, a financial-services analyst at Edward Jones to Market Watch. “The question they’re asking is where is revenue growth going to come from in the future?”

She added, “You’re just not going to see [revenue growth from core operations] over the next couple of quarters because the macro picture is still very mixed.”

Bank of America Corp (NYSE: BAC) compounded the damage to its stock price on Friday by announcing that it expects to take a multi-billion dollar hit as a result of the new financial regulatory reform legislation.  For the latest quarter, there was “more noise than we would have liked,” Chief Executive Brian Moynihan said on a conference call, “but some of it is inevitable as we reposition our company.”