Financial Companies’ Profits Rise

Citigroup Inc., Bank of America Corp., J.P. Morgan & Co. and other U.S. financial institutions reported higher fourth-quarter earnings driven by investment banking fees and trading.

Citigroup, the biggest U.S. financial services company, said fourth-quarter profit climbed 86% as its Salomon Smith Barney unit recovered from year-ago trading losses.

Profit at Bank of America, the nation’s largest bank, grew 33%. J.P. Morgan, the fifth-largest U.S. bank, said its profit tripled.

The banks, with big securities businesses, either bettered or met Wall Street expectations as merger activity and U.S. stock indexes rose to records last year.

Mergers worldwide rose to a record $3.43 trillion in 1999, generating fees for banks that arranged them. Firms that trade and underwrite stocks also benefited from surging equity markets, led by computer-related shares.

Even so, exceeding profit from a year earlier was easy, as stocks and corporate and emerging-market bonds slumped in 1998 after Russia’s default.

Citigroup’s profit jumped to $2.61 billion, or 75 cents a share, well above the average forecast of 70 cents a share from a survey by First Call/Thomson Financial. Profit was $1.4 billion, or 40 cents, a year ago.

Income at Salomon Smith Barney surged fiftyfold to $664 million from $13 million. The gain came amid a recovery in bond trading from the second half of 1998, when a global rout in corporate and emerging-market bonds and currencies caused trading losses.

Underscoring the role investment banking will play in Citigroup’s future, the company said Tuesday it will spend $2.2 billion to acquire the investment banking division of Britain’s Schroder. The acquisition of the London-based business will double Salomon Smith Barney’s presence in Europe.

Income at Citigroup’s global consumer unit, which includes Citibank, mortgage lending and credit cards, rose 34%, and corporate and investment banking income more than doubled.

Citigroup was formed in the 1998 merger of insurer Travelers Group Inc., which owned Salomon Smith Barney, and Citicorp, the No. 3 U.S. bank.

Bank of America said profit from operations rose to $2.12 billion, or $1.23 a share, on higher fee income and lower costs. The results met the average estimate of analysts surveyed by First Call/Thomson Financial.

Earnings growth was fueled by a 35% jump in fees and other income, as the bank rebounded from year-earlier loan losses arising from investments in and loans made to New York-based hedge fund D.E. Shaw & Co. after Russia’s loan defaults and currency free fall sent capital markets tumbling.

The Charlotte, N.C.-based bank, which was created in the September 1998 merger of Charlotte-based NationsBank Corp. and San Francisco-based BankAmerica Corp., cut expenses 4% last year mostly by cutting employees and closing branches.

Net interest income fell 2.4% to $4.54 billion and non-interest expenses declined 3% to $4.60 billion.

J.P. Morgan’s profit leaped to $509 million, or $2.63 a share, from of $175 million, or 86 cents, a year earlier, on fees from investment banking, underwriting stock and managing clients’ money. The average analyst estimate was $2 a share.

The New York-based company, which has been transforming itself from a lending bank into an investment bank, benefited from the growth of its equities business. Equities revenue, including stock underwriting and brokerage commissions, more than doubled to $420 million.

Overall, non-interest revenue rose 44% to $1.83 billion, as investment banking revenue rose 17% to $309 million and asset management revenue rose 27% to $352 million.

* Wells Fargo & Co. said net income rose to $970 million, or 58 cents a share, from a profit before charges of $768 million, or 46 cents, in the fourth quarter of 1998. Analysts had forecast an average of 59 cents a share in a First Call/Thomson Financial survey.

San Francisco-based Wells Fargo, which merged with Minneapolis-based Norwest Corp. in November 1998, took year-earlier merger-related and other charges of $1.15 billion and a $320-million loan loss provision that is not included in the year-earlier results.

Net interest income rose 3.9%. Non-interest income rose 33%, mostly from a noncash venture capital gain of $560 million in Cerent Corp., a Petaluma, Calif.-based maker of equipment for routing phone calls and Internet traffic through fiber-optic lines.

* Bank One Corp., the fourth-largest U.S. bank, said profit fell 13% to $904 million, or 78 cents a share, in the fourth quarter as its First USA credit card unit lost customers. Bank One warned last week that its earnings would decline, forecasting profit at 78 cents a share, a penny short of the average analyst estimate at the time. Bank One’s net interest income fell 6% and non-interest income dropped 14%. Credit card revenue fell 40%.

At a Glance

Other earnings, excluding one-time gains or charges unless noted:

* Capital One Financial Corp. said fourth-quarter earnings rose 35% to $97.9 million, or 47 cents a share, matching forecasts, as the issuer of bank credit cards opened more accounts through record marketing spending. Revenue jumped 36% to $1.05 billion.

* Charles Schwab Corp. said fourth-quarter profit rose 60% to $170.5 million, or 20 cents a share, as customers poured a record $33.3 billion in new assets into their accounts. The results met expectations of 19 cents by 13 analysts surveyed by First Call. Schwab, the nation’s largest discount and online brokerage, said revenue climbed 39% to $1.1 billion. Online trades made up 73% of all trades at Schwab during the quarter, up from 61% in the fourth quarter of 1998.

* Paine Webber Group Inc. said fourth-quarter profit rose 65% to $166.3 million, or $1.07 a share, well above the 92-cent average forecast of analysts surveyed by First Call. The brokerage’s revenue jumped 26% to $1.39 billion. Trading commission revenue grew 26% and trading revenue surged 41%. Investment banking revenue grew 26%.

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Associated Press was used in compiling this report.

* BIG QUARTER: Microsoft’s fourth-quarter earnings beat estimates. C1