Settlements with the federal government for mortgage servicing misconduct led to sharp year-over-year declines for Citigroup and Bank of America in both fourth quarter and full-year net incomes in 2014, according to Q4 2014 and year-end earnings statements for both banks released on Thursday.
Burdened by legal and related expenses and repositioning charges, Citigroup reported fourth quarter 2014 net earnings  that were only a fraction of what they were in the same quarter a year earlier. Citigroup reported net earnings of $350 million on $17.8 billion in revenues for Q4 2014, way down from the net earnings of $2.5 billion the bank rolled in for Q4 2013 on the same revenues, $17.8 billion. Net income per diluted share fell from $0.77 in Q4 2013 all the way down to a mere $0.06 for Q4 2014 for Citigroup.
Bank of America  reported a relatively minor  slowdown in the fourth quarter of 2014 with a net income of $3.1 billion on $19.0 billion in revenues compared to $3.4 billion on $21.7 billion in revenues in the same quarter of 2013.
Both institutions had a rough year in 2014 on the regulatory side of things. In July, Citigroup settled with the Department of Justice for $7 billion over the sale of toxic mortgage-backed securities. A month later, Bank of America settled with the DOJ for a record $16.65 billion over similar matters. The money paid out in penalties and consumer relief in 2014 took a toll on year-end net incomes for both institutions.
Citigroup's full-year net income for 2014 was only slightly more than half of what it was for 2013—$7.3 billion in 2014 compared to $13.7 billion for 2013. Revenues were similar, and were actually slightly higher in 2014—$76.9 billion compared to $76.4 billion for 2013.
"While the overall results for 2014 fell short of our expectations, we did make significant progress on our top priorities. During the year, we increased our market share among our target institutional clients, grew our core loan book, and improved both our net interest revenue and margin from 2013 levels," said Michael Corbat, CEO of Citigroup. "For the first time since its establishment, Citi Holdings was profitable for the full year and we accelerated the utilization of our deferred tax assets. We strengthened our capital planning process and made Citi a safer and stronger institution, as evidenced by the increases to our capital, leverage and liquidity ratios. Although we made some difficult decisions over the course of the year, I believe they allowed us to put our franchise in a position to have a successful 2015."
Bank of America's full-year net income was $4.8 billion for 2014, compared with $11.4 billion for 2013. Net income per diluted share fell from $0.90 in 2013 to $0.36 in 2014. Revenues for Bank of America dropped down to $85.1 billion in 2014, compared to $89.8 billion in 2013. On the positive side, the bank originated $15 billion in residential mortgage loans and home equity loans during Q4 2014, which helped approximately 41,000 homeowners purchase a home or refinance a mortgage.
"In 2014, we continued to invest in our businesses while reducing expenses and resolving our most significant litigation matters," Bank of America CEO Brian Moynihan said. "Last quarter, consumer deposits and loan originations were solid; wealth management client balances grew to $2.5 trillion; we increased lending to middle-market and large companies; and we retained a leadership position in investment banking. There's more work and tremendous opportunity ahead as we improve on the platform we've built to serve our customers and clients, and we enter 2015 in good shape to manage both the opportunities and the challenges the markets and economy will offer."