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BofA, Citigroup Reveal Troubles in Q4 Earnings

""Bank of America"":https://www.bankofamerica.com/ and ""Citigroup"":http://www.citigroup.com/citi/ both released their fourth-quarter earnings Thursday, revealing the scars their legacy mortgage issues have left.

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BofA reported net income of $732 million, a significant decline from $2 billion in Q4 2011. The bank did better on a year-long scale, coming in at $4.2 billion (well above its $1.4 billion income in 2011).

BofA funded $22.5 billion in residential home loans and home equity loans during the fourth quarter, an increase of 41 percent from the same quarter in 2011. That figure excludes correspondent business, which the company exited in late 2011.

Credit quality also improved, with the number of 60-plus day delinquent loans declining 17 percent from the third quarter. As such, the company reported a 25 percent drop in provisions for credit losses.

For all of that growth, however, BofA's Commercial Real Estate Services division reported a net loss of $3.7 billion. Most of that hit came from ""settling claims"":https://themreport.com/articles/bofa-fannie-mae-resolve-repurchase-claims-2013-01-07 over mortgages [COLUMN_BREAK]

sold to Fannie Mae. The bank also noted a $1.1 billion provision for its part in the ""recent agreement"":http://www.dsnews.com/articles/ten-banks-reach-85m-deal-with-regulators-in-foreclosure-settlement-2013-01-07 to accelerate the Independent Foreclosure Review of alleged abuses.

While those issues proved to be a major drag on BofA's fourth-quarter earnings, CFO Bruce Thompson said the bank is glad to rid itself of those concerns.

""We addressed significant legacy issues in 2012 and our strengths are coming through,"" Thompson said.

Legal expenses also weighed down profits at Citigroup, though the company did manage to come out ahead on a yearly basis with a $1.2 billion profit in Q4. Citi's full net income in 2012 was $7.5 billion.

Increased mortgage revenues brought up the Global Consumer Banking division, which posted revenues of $10.2 billion (4 percent up from the prior year).

However, Citi suffered from $1.3 billion in legal and related expenses, and its earnings weren't elevated much by the release of only $86 million from its loan loss reserve (versus $1.5 billion in Q4 2011).

While Citi pulled ahead compared to last year, its earnings still fell well short of forecasts, and CEO Michael Corbat (who replaced former executive Vikram Pandit following Citi's Q3 2012 earnings report) has gone on the defensive.

""Our bottom line earnings reflect an environment that remains challenging--with businesses working through issues like spread compression and regulatory changes--as well as the costs of putting legacy issues behind us,"" Corbat said. ""It will take some time to work through the challenges of the current environment but realizing our core earnings potential, as well as improving our returns on assets and tangible equity, are critical goals going forward.""

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