Major Banks Report Disastrous Earnings; ARM Strategies Seen Shifting

Financial services earnings continued to show no signs of recovery as many of the nation’s largest financial institutions and some of the regional banks reported earnings last week. Analysts say that the dismal earnings could impact accounts receivable management strategy.

Bank of America and Citi led a rash of reports of sharply lower earnings, reporting results even worse than expected and leading to major financial moves. The Dow Jones Industrial Average lost more than 330 points Tuesday on bank weakness to close below 8,000 for the first time since November.

Bank of America reported a net loss of $1.79 billion in the fourth quarter, compared with net income of $268 million a year earlier. The net loss applicable to common shareholders was $2.39 billion, or $0.48 per diluted share, down from net income of $215 million, or $0.05 per share, in the same period in 2007. Results include mortgage giant Countrywide Financial, which Bank of America purchased on July 1, but not Merrill Lynch & Co., Inc., which was acquired on Jan. 1, 2009.

The bank announced that it would slash its dividend from $1.28 to 4 cents per share, while also seeking and receiving an additional $20 billion and guarantee $118 billion of assets from the government.

Citigroup Inc. is considering a major restructuring after reporting a net loss for the 2008 fourth quarter of $8.29 billion, or $1.72 per share, based on 5,347 million shares outstanding. Revenues of $5.6 billion were affected by write-downs and losses in securities and banking. Results also include $6.1 billion in net credit losses and a $6 billion net loan loss reserve build.

For the full year 2008, Citigroup reported a net loss of $18.72 billion, or $3.88 per share, resulting in the need for a major restructuring of the company.

“We announced that we would separate the company, for management purposes, into two separate businesses -- Citicorp and Citi Holdings,” Citi CEO Vikram Pandit said in a prepared statement. “We are setting out a clear roadmap to restore profitability and enable us to focus on maximizing the value of Citi. We are committed to helping the financial markets recover as quickly as possible. To accelerate that recovery Citi is putting the TARP capital it has received to work to support the U.S. economy and consumers - expanding the flow of credit to U.S. households and businesses responsibly and on competitive terms.”

“The largest financial institutions tend to have the biggest losses,” added Aite Group analyst Nancy Atkinson. “It was the largest financial institutions that took the largest risks. Risks lead to rewards, so they had high earnings for some time, then things came crashing down.”