US banks spook investors

THE nightmare on Wall Street continued in earnest yesterday when gloomy results at two of America’s biggest banks spooked shareholders.

Profits at Citigroup were almost wiped out by £2.3bn in legal charges and restructuring costs in the final three months of the year, while the income generated by its traders slumped.

Profits fell to £230m in the fourth quarter, compared with £1.6bn a year earlier.

Chief executive Michael Corbat, pictured, had warned investors last month about the huge legal provisions. But a 16pc fall in bond trading revenues was worse than expected.

Citigroup was one of six banks fined a total of £2.6bn last November for rigging foreign exchange markets.

But it faces further settlements with other US regulators including the Department of Justice.

The figures were less dire at Bank of America Merrill Lynch, but fourth quarter profit still sank 11pc to £2bn.

Like Citigroup, it was hit by a sharp fall in income from its large bond trading arm.

Chief executive Brian Moynihan warned last month that trading revenue would be lower than previously forecast.

But yesterday the bank alarmed investors by revealing that its sales and trading revenue slumped 20pc to £1.6bn. Trading in bonds, currencies and commodities fell even more sharply, by 30pc.

This offset attempts by the bank to slash costs by cutting thousands of jobs.

Provisions for wrongdoing in the fourth quarter fell to £259m from £1.5bn a year earlier. Last August Bank of America was hit with a record £10bn fine by US regulators for mis-selling risky bundles of mortgage debt in the run-up to the financial crisis.

US banks – like their UK counterparts – face spiralling bills for wrongdoing.

Profits generated by their traders are also being squeezed by tougher regulations and difficult markets. US giant JP Morgan announced disappointing fourth quarter results on Wednesday, after setting aside £660m for legal costs. Its boss Jamie Dimon said US ‘banks are under assault from regulators’.