Poor Wealth Results For US Giants, Citi Splits In Two

Tom Burroughes

19 January 2009

Two of the largest US banks both with wealth management operations, Citi and Bank of America, reported their full-year results for 2008 today, showing losses in the final three months of last year.

And separately, Citi, which has been pummelled by heavy losses during the financial turmoil, is to split into two separate business divisions, a move which follows Citi’s spin-off of its Smith Barney brokerage business in a joint venture with Morgan Stanley. The two new divisions of Citi will be called Citicorp and Citi Holdings. The former will focus on banking activities including private banking, while Citi Holdings will hold the firm’s brokerage, retail asset management, consumer finance and hold a special asset pool of distressed assets.

“In light of the opportunities we see in the market today, we believe this new structure will provide a wide range of options going forward to continue strengthening our core franchise," Citi chief executive Vikram Pandit said in a statement. At Citi, the bank said it has entered into definitive agreements with the US Department of Treasury, The Federal Deposit Insurance Corporation, and the Federal Reserve Bank of New York concerning a loss-sharing programme previously announced in November last year.

In its results, Bank of America said its global wealth and investment management arm suffered a drop in net income in 2008 to $1.42 billion, from $1.96 billion in 2007; assets under management at the end of December dropped to $524 billion from $643 billion.

Citi, meanwhile, said its global wealth management’s net income crashed by 94 per cent in the fourth quarter of last year, falling to $29 million from $524 million in the last three months of 2007. For the whole of 2008, its net wealth management income fell by 45 per cent to $1.09 billion from a year earlier.

Both BoA and Citi reported losses in the fourth quarter across their entire operations. BoA logged a net loss of $1.79 billion in the last three months of 2008, compared with net income of $268 million in the same period a year before. BoA’s total group profits, meanwhile, slumped to $4.01 billion in 2008 from $14.98 billion a year ago. Citi made a net loss of $8.29 billion in the fourth quarter, translating into a net loss of $18.72 billion for 2008, versus $23.3 billion loss in 2007.

Both banks have been hit by the credit crunch and have been involved in two major merger and acquisition deals during recent weeks. BoA completed its $50 billion takeover of Merrill Lynch on 1 January this year.

The US government announced late yesterday that it will inject a further $20 billion into BoA to enable the bank to absorb losses associated with its Merrill Lynch purchase.

In a detailed breakdown of its results, Bank of America said its latest figures did not include Merrill Lynch results. It said Merrill’s preliminary results indicated a fourth-quarter net loss of $15.31 billion,caused by severe capital markets dislocation.

One of BoA’s divisions, US Trust, Bank of America Private Wealth Management, suffered a drop in net income of 2 per cent to $460 million. Net revenue rose 14 per cent to $2.65 billion due to the addition of US Trust and LaSalle, partially offset by the weaker equity markets.

Bank of America had a Tier 1 capital ratio of 9.15 per cent at the end of last year. It said the US government’s latest injection of public cash would lift that ratio to 10.70 per cent.

Citi said its global wealth management revenues fell by 18 per cent last year from 2007, with market declines in North America and Asia taking a particularly heavy toll. Client assets under fee-based management dropped by 35 per cent to $332 billion at the end of last year, the bank said.