NEW YORK (AP) — The reality of rising losses at Citigroup Inc. and Bank of America Corp. sank in on Wall Street Friday, making investors increasingly pessimistic about the struggling financial sector and forcing them to give back a big early gain.
The market initially focused not on the losses at the big banks, but the steps they were taking to improve their profitability.
Bank of America reached a deal late Thursday to receive an additional $20 billion in capital from the government. The bank will also receive guarantees to cover up to $118 billion in losses on loans and securities backed by residential and commercial real estate as it incorporates recently acquired Merrill Lynch & Co. into its operations. Bank of America’s deal with the government is similar to one Citigroup reached with the government last fall.
John Merrill, chief investment officer of Tanglewood Wealth Management, said the change in direction Friday was not surprising.
“Every time the government does something, there is an initial and fleeting excitement this will help,” Merrill said. “But (investors) look deeper and see, wow, this is a mess.”
Citigroup, among the hardest hit by the ongoing credit and mortgage market turmoil, said it plans to split in two, separating its traditional banking business from its riskier operations. Earlier in the week, Citi agreed to sell a majority stake in its brokerage business to Morgan Stanley as it looks to streamline operations and shed assets
Citi said it lost $8.29 billion, or $1.72 per share, during the final three months of the year. Bank of America said it lost $2.39 billion, or 48 cents per share.
Bank of America shares tumbled 90 cents, or 10.8 percent, to $7.42. Shares of Citi fell 4 cents to $3.79.
In midday, the Dow Jones industrial average fell 84.83, or 1.03 percent, to 8,127.66. The Standard & Poor’s 500 index fell 11.39, or 1.16 percent, to 832.35, while the Nasdaq composite index declined 18.68, or 1.24 percent, to 1,493.16.
