Bank of America Corp Chief Executive Officer Kenneth Lewis said his company was profitable in January and February, joining JPMorgan Chase & Co and Citigroup Inc in suggesting the nation’s three biggest banks are recovering from a dismal 2008.
“We have been profitable for the first two months of the year,” Lewis told reporters after delivering a speech in Boston yesterday, echoing comments this week by JPMorgan CEO Jamie Dimon and Citigroup’s Vikram Pandit. “We expect to be profitable” in 2009, he said.
A month ago, the three bankers were among executives called before Congress to explain multimillion-dollar bonuses and pay packages even as losses mounted and the US pumped billions of dollars into their companies. The banks’ shares, still down by as much as 90 per cent in a year, have rebounded in recent days. Bank of America rose 86 per cent this week, while Citigroup advanced 62 per cent and JPMorgan is 46 per cent higher.
“They are trying to instill some confidence in the equity markets and combat some of the rhetoric coming from Washington about the nationalisation of banks,” said Gerard Cassidy, a banking analyst at RBC Capital Markets in Portland, Maine. “They are trying to put support into the fact that it is very difficult out there but we aren’t going out of business.”
Pandit’s memo
Pandit ignited a stock-market rally on March 10, days after Citigroup shares sank below $1 for the first time, when he said in an internal memorandum that his bank turned a profit in the year’s first two months. Dimon followed on March 11, telling CNBC that his bank had a profit in January and February.
Citigroup Chairman Richard Parsons told Reuters on Staurday that the bank doesn’t need more money from the government and wasn’t likely to be nationalised. “Citi is actually one of the better-capitalised banks in the world,” Parsons said during a Business Roundtable event in Washington, Reuters said.
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The bank may nominate three new board members by early next week, the Wall Street Journal reported on Sunday, citing people familiar with the matter.
The nominees include former US Bancorp Chief Executive Officer Jerry Grundhofer, ex-Bank of Hawaii Corp CEO Michael O’Neill and William S Thompson, former co-head of Pimco.
Skepticism lingers about the bankers’ forecasts, said Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., a Washington research firm. “Whether they will be profitable remains to be seen because with the possible exception of Mr. Dimon, the others have been hugely wrong a lot,” she said.
Lewis said early last year that Bank of America, the biggest U.S. bank by assets, would earn $4 a share in 2008 if the economy improved. The bank earned 55 cents for the year and reported a $1.79 billion loss in the fourth quarter, its first deficit in 17 years.
Shares of Bank of America and Citigroup, the third-largest U.S. bank, have plunged in the past year on writedowns sparked by the subprime crisis. After five days of gains, Citigroup shares are trading at just $1.67, a fraction of the $21 they fetched a year ago.
Lewis, 61, has promised that his Charlotte, North Carolina- based bank won’t need more help from U.S. taxpayers. The company and its units accepted capital and guarantees from the federal rescue program valued at $163 billion.
Recovery Coming?
An expected $50 billion profit this year before taxes and provisions would forestall the need for more federal aid, Lewis said. He said he believed the first sign of an economic recovery would come from the housing industry.
Bank of America’s July 2008 acquisition of Countrywide Financial Corp., the largest U.S. home lender, “is really paying off for us,” Barbara Desoer, head of the bank’s mortgage business, said in a telephone interview yesterday. “Thank goodness we have it in this part of the cycle.”
JPMorgan’s shares have declined 40 percent in the past year, the fifth-best performance in the 24-company KBW Bank Index. The index has declined 68 percent over the past year.
The optimism evinced by the CEOs’ comments this week has been in scarce supply amid fears that unrealized losses at U.S. banks exceed their capital cushions by $400 billion, according to estimates by New York University professor Nouriel Roubini.
“A lot of banks were priced for Armageddon,” said Bill Stone, who helps oversee about $110 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “When some of the names which were most under the gun say things are looking better, that’s certainly good news.”
To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net