Conservative banks make Wall Street happy

Citigroup and Bank of America, two of the world's largest financial services groups, yesterday gave Wall Street a shot in the arm when they reported improved second-quarter profits.

Citigroup's earnings increased 5% to $4.3bn (£2.6bn), citing a strong performance in its consumer businesses and in investment banking - pointing to the growing levels of corporate activity after three years of drought.

Bank of America, the third biggest bank in the US, said second-quarter profits were 23% higher at $2.7bn, helped by better credit card revenues and a sharp increase in mortgage income as consumers rush to take advantage of historically low interest rates.

Both comfortably beat analysts' expectations, giving a boost to the markets.

In midday trading, the Dow Jones index was 145 points higher at 9265 while the Nasdaq was 36 points up at 1770.

Citigroup also signalled its intention to shift much of its equity-based compensation from share options to restricted stock.

Chief executive Sanford Weill, who has come under criticism over recent investigations into the research profession, said the move demonstrated the bank's "commitment to best-in-class governance".

In another example of a more conservative Wall Street, the banking group said it would lift its quarterly dividend from 20 cents a share to 35 cents a share. Shares in Citigroup were trading $1.63 higher at $47.78.

The results were a relief for investors in the banking sector. For the past few years it has been blighted by a dearth of investment banking business and exposure to rising bad loans and bankruptcies. The industry has also been hit by penalties and lawsuits stemming from corporate accounting scandals and an examination of the banking world's role in encouraging the dotcom bubble.

Citigroup revenues in the quarter were 8% higher at $19.35bn. Retail banking rose by 63% to $1.05bn, led by record trading in the mortgage business.

Earnings from the group's global corporate and investment bank business edged 2% higher to $1.34bn - a modest increase but given the slumps in the industry of recent years, it was one investors found encouraging.

The bank said it had a record quarter in fixed-income trading and underwriting.