Bank of America, Citigroup could face breakup questions

Kaja Whitehouse | USA TODAY

Bank of America and Citigroup could face questions about whether they would be better broken up when they report earnings Thursday, experts said.

On Wednesday, JPMorgan Chase's Jamie Dimon dismissed a proposal calling for the bank to be broken into pieces, saying the plan would "damage the franchise."

But Wall Streeters say the question is not going to go away easily. In fact, they expect to hear similar questions put to Bank of America and Citigroup when they report fourth-quarter earnings early Thursday.

"If you're thinking about it for JPMorgan, you have to think about it for the other banks that are having more problems," said James Sinegal, banking analyst with Morningstar.

"It gets to the point where the banks are just too large," said Erik Oja, U.S. banking analyst for S&P Capital IQ. "I think they will get questions about it," he said of Bank of America and Citigroup.

Government officials such as Sen. Elizabeth Warren, D-Mass., have long been calling for the big banks to shrink. But the idea gained traction again last week when it was floated by Goldman Sachs, a Wall Street insider.

The pressure comes amid expectations for a subdued bank-earnings season and elevated volatility in the U.S. stock market as well as continued legal burdens. Citigroup, for example, has already warned that $2.7 billion in legal costs will dampen its fourth-quarter profit.

JPMorgan, the biggest U.S. bank by assets, saw its shares tumble more than 5% Wednesday after the banking giant reported disappointing fourth quarter earnings. The stock closed down 3.45% to $56.81 a share.

The bank said it earned $4.93 billion, or $1.19 a share, for the three-month period ending in December, compared with a profit of $5.28 billion, or $1.30 a share, a year ago. The results include legal expenses of $990 million.

Net revenue declined 3% to $22.5 billion.

By contrast, Wells Fargo, the smallest of the four biggest banks, posted profits of $5.71 billion for the three-month period that ended in December, up 2% from last year. On a per-share basis, that comes to $1.02 a share — or 2% above the $1 per share of profits posted this time last year.

The bank posted a revenue increase of 4% to $21.4 billion.

Wells Fargo's solid earnings could add fuel to the idea that the larger banks would be better off in pieces, said Oja. Wells is in the "sweet spot" of under $2 trillion in assets, making it the smallest of the four big banks, Oja said.

Wall Street analysts expect Bank of America to expected to post earnings of 31 cents a share on revenue of $20.9 billion, according to data from Thomson Reuters. Last year, the bank posted fourth-quarter profits of 29 cents a share and $21.49 billion in revenue.

Citigroup is projected to post earnings of 9 cents a share on revenue of $18.5 billion. Last year it posted earnings of 77 cents per share and $17.78 billion in revenue.