Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) shares are both falling this morning on the heels of bad earnings reports for the fourth quarter of 2012. Pre-earnings reports for the two banks indicated that the Bank of America was expected to announce 19 cents in earnings per share and $20.6 billion in revenue.


However, the bank saw its profits drop 63 percent due to bad mortgages, which have been hanging around for the past four years. The bulk of those bad mortgages came from Countrywide Financial, a subprime lending company the bank acquired in 2008. Bank of America Corp (NYSE:BAC) reported just $732 million in earnings, or a measly 3 cents per share. The bank did still manage to beat estimates of a Thomson Reuters consensus, which was 2 cents per share.

Bank of America’s fourth quarter revenue dropped about 25 percent to $18.7 billion, falling far short of the $20.6 billion analysts  expected. However, we do see some signs of recovery for the bank. Profit for all of 2012 did jump to $4.2 billion—far above the $1.4 billion the bank brought in during 2011. Also, the number of delinquent loans the bank managed during the fourth quarter fell, and the wealth management division of the bank continued reporting big gains.

Shares of Bank of America Corp (NYSE:BAC) were down 3 percent in trading this morning , which isn’t a huge loss for the bank. Analysts at Morgan Stanley rated the company’s stock as Equal-weight, saying the company’s results were in line with their expectations and noting that the bank seems to be recovering.

Citigroup Earnings Results

Now, we turn to Citigroup Inc. (NYSE:C), which missed its earnings expectations even worse than Bank of America. Earnings per share for Citigroup was expected to be 97 cents per share, but came in at only 69 cents per share. Revenue for Citigroup was expected to be $18.82 billion, but the results indicated $18.7 billion. Net income except for credit valuation adjustments was $2.2 billion.

Citigroup tried to lessen the mortgage losses it experienced during the financial crisis by releasing $86 million in loan loss reserves. However, the year before it released $1.5 billion, so that’s where part of the weak results comes from. Nomura analysts noted that the bank still has $8.5 billion in housing-related reserves, which will be released eventually. The analysts say another part of Citigroup’s problem in the last quarter was higher-than-expected legal costs.

They note that the bank’s core businesses looked alright, although its expenses have not yet fallen. Last month the bank announced that it would slash jobs and take other cost-cutting measures in 2013, although Nomura thinks investors will become impatient with the fact that expenses haven’t fallen yet.

Analysts at Nomura are maintaining their Buy rating on shares of Citigroup Inc. (NYSE:C) and set their price target at $45 per share. Shares of Citigroup were down almost 3 percent in trading this morning.