--B1-- Citi results weighed down by failed loans By IEVA M. AUGSTUMS, AP Business Writer CHARLOTTE, N.C. -- Citigroup provided a sobering reminder Thursday that the economy is still struggling, reporting that its third-quarter results were weighed down by billions of dollars in failed loans. The bank reported a $101 million profit before accounting for $288 million in preferred stock dividends and the debt exchange offer that gave the government a 34 percent stake in the bank. Including those items, the New York-based bank reported a $3.24 billion loss. The bank, one of the hardest hit during the credit crisis and recession, said loan losses during the quarter came to $8 billion, down $386 million from nearly $8.4 billion in the second quarter, but a sign that many consumers continue to be overwhelmed. Banks including Citigroup had warned when second-quarter earnings were released that loan losses would continue into next year. John Gerspach, Citigroup's chief financial officer, said during a call with media that the view of credit in North America is "somewhat mixed." Citigroup said it added $800 million to its loan loss reserves during the third quarter, down $3.1 billion from the addition it made during the second quarter. Citigroup, like other national banks, has seen more customers stop repaying loans as the economy falters and unemployment rises. Credit card defaults and mortgage losses are likely to continue to climb. Losses on credit cards typically mirror unemployment, which rose to 9.8 percent in September. Economists predict the jobless rate will pass 10 percent in the coming months. The debt exchange offer completed during the quarter gave Citigroup a better mix of capital to withstand additional loan losses and further weakening in the economy. It resulted in the government owning a 34 percent stake in Citigroup. The company took an accounting charge of $3.06 billion as a result of the exchange, contributing to the majority of its third-quarter loss. Citigroup has received $45 billion in loans from the U.S. government, part of which was converted to that ownership stake. It has also received guarantees to protect against losses on more than $300 billion in risky assets. As part of its efforts to rebuild, Citigroup in January split its operations into two entities: Citicorp and Citi Holdings. Citicorp, its core consumer and corporate banking operation, had $2.3 billion profit in the third quarter. Citi Holdings, which contains the money-losing businesses and toxic assets the bank plans to sell, showed a $1.9 billion quarterly loss. It was weighed down by the heavy losses tied to private-label credit cards, mortgages, and consumer loans. JPMorgan Chase & Co., which reported quarterly results Wednesday, also struggled with rising loan losses, particularly in its home and credit card loan portfolios. However, its strong investment banking division more than offset the troublesome loans, helping JPMorgan earn $3.59 billion during the quarter. --B2-- Goldman beats Street on big bond trading profits By Steve Eder NEW YORK (Reuters) -- Goldman Sachs Group Inc (GS.N) posted better-than-expected quarterly earnings, fueled by outsized bond trading profits. The New York-based firm reported net income for common shareholders of $3.03 billion, or $5.25 a share. That compares with $845 million, or $1.81 per share, in the year-earlier quarter. Analysts on average had forecast earnings of $4.24 a share, according to Thomson Reuters I/B/E/S. Goldman shares were down 1.4 percent premarket trading Thursday. Goldman set aside $5.4 billion for compensation during the third quarter, raising its total to $16.8 billion for the year. In the first half of the year, it averaged $5.7 billion per quarter, or just under half its revenue. Goldman Shares closed at $192.28 on Wednesday on the New York Stock Exchange. The shares are up more than 300 percent since lows set last November. (Reporting by Steve Eder; editing by John Wallace) --B3-- Ex-Bear Stearns manager did not lie: lawyer By Grant McCool NEW YORK (Reuters) -- Former Bear Stearns hedge fund manager Matthew Tannin, on trial for fraud and charges he lied to investors early in the financial crisis, could not have foreseen problems in the subprime mortgage market in 2007, his lawyer said in opening his defense on Thursday. Fund managers Tannin and Ralph Cioffi have denied charges of securities fraud, wire fraud and conspiracy in the June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from the stock market meltdown. "No one can lie about what the future will bring because nobody knows what the future will bring," Tannin's lead lawyer, Susan Brune, told the jury in a New York court before U.S. District Judge Frederic Block. "As Judge Block told you, Matt is presumed innocent, more than that, he is innocent," Brune said. "He tried to foster debate, think through all the options and he used emails to foster that kind of debate." Emails written by Cioffi, 53, and Tannin, 48, are key to the government's case. Prosecutors contend that in March 2007 -- more than 18 months before the full extent of the crisis became clear -- the pair promoted the funds to investors while privately emailing their fears about a possible calamity in the subprime mortgage market. The two funds run by Tannin and his boss Cioffi were crammed with subprime mortgage-backed securities and lost investors $1.4 billion, according to the indictment. If convicted, both men could face imprisonment of up to 20 years. Brune said in court that the case was about risks inherent in hedge fund management and about her client "worrying" and "being anxious" as he was "trying to do his best" for investors, many of whom were large financial institutions. Neither man is charged with contributing to the demise of Bear Stearns Cos less than a year after the funds collapsed in mid-2007. The company was sold to JPMorgan Chase & Co (JPM.N) in a government-backed deal. The 12 jurors were selected after answering written and oral questions about whether they could be fair to the defendants in an era of home foreclosures, job losses and government bailouts of banks. In the government's opening statement to the jury in U.S. District Court in Brooklyn on Wednesday, a prosecutor said the two men repeatedly lied to investors in March and April 2007 "to save their bonuses and their reputations." The prosecutor, Patrick Sinclair, said in court that the investors, institutions and wealthy individuals from all over the world, lost $1.6 billion. Cioffi's lawyer, Dane Butswinkas, told the jury in his opening statement on Wednesday that his client, "did not know how things would turn out" and "didn't have hindsight like the government has today." The case is USA v Cioffi & Tannin, U.S. District Court for the Eastern District of New York, No. 08-415. (Reporting by Grant McCool, editing by Maureen Bavdek) --B4-- Capital One credit card defaults rise in September NEW YORK (Reuters) -- Capital One Financial Corp's (COF.N) U.S. credit-card defaults rose in September as more Americans lost their jobs, in another sign that consumers remain under stress. In a regulatory filing on Thursday, Capital One said the annualized net charge-off rate -- debts the company believes it will never collect -- for U.S. credit cards had risen to 9.77 percent in September from 9.32 percent in August. Accounts at least 30 days delinquent -- an indicator of future loan losses -- increased to 5.38 percent from 5.09 percent. JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), American Express Co (AXP.N) and Discover Financial Services (DFS.N) plan to report the monthly performance of their credit card portfolios later on Thursday. Credit card defaults usually track unemployment, which rose to a 26-year high of 9.8 percent in September. The jobless rate is expected to peak at more than 10 percent by year-end. Considering the trend of unemployment and the increase in delinquencies, analysts have estimated credit card losses will keep rising in coming months. Credit Suisse analyst Moshe Orenbuch believes loss rates will not improve for more than a year, he wrote in a note to clients on Wednesday night. "Call us old-fashioned, but it seems that if significantly more people are out of work (and that number is climbing at an annual rate of more than 3 million) that the risk of higher credit losses is increasing," Orenbuch said. Orenbuch said he expected credit card losses to peak in the fourth quarter and remain elevated in 2010. For U.S. auto loans, Capital One's charge-off rate went up to 4.58 percent in September from 4.31 percent in August, and the delinquency rate inched up to 9.52 percent from 9.42 percent. In international operations, including Canada and Britain, the charge-off rate rose to 9.24 percent in September from 8.60 percent in August, but the delinquency rate fell to 6.63 percent from 6.67 percent. (Reporting by Juan Lagorio; Editing by Lisa Von Ahn) --B5-- BofA to charge annual fees on some credit cards By CANDICE CHOI, AP Personal Finance Writer Bank of America Corp. said Tuesday it will charge a limited number of its credit card customers annual fees ranging from $29 to $99 starting next year. "We're testing this to see what the feedback is. In terms of any plans going forward, we haven't made any decisions," said Betty Riess, a spokeswoman for Bank of America. She said the fee is being "tested" on less than 1 percent of its credit card accounts globally, but declined to give specific numbers. Bank of America, based in Charlotte, N.C., had 80.2 million credit cards in circulation last year, making it the third-largest issuer of cards, according to CreditCards.com. Chase was first with 119.4 million cards, while Citi had 92 million. The Bank of America accounts that will be charged fees were selected based on "risk and profitability," Riess said. That means customers in good standing who never carried a balance --and never incurred interest charges or late fees -- could be among those getting notices. The notices of the new fee comes after Bank of America last week vowed not to hike interest rates on credit cards ahead of the sweeping new credit-card reforms that go into effect in February. That pledge came as Congress considered moving up the effective date of the law to Dec. 1. Customers across the country have seen interest rates hiked and credit limits lowered since the law was signed in May. Among other consumer protections, the law limits how and when banks can hike interest rates and fees on credit cards. Analysts have predicted banks would make up lost revenue by charging annual fees more frequently on credit cards and checking accounts, even for customers in good standing. "We are making this change in response to market conditions, new federal laws and regulations, and the increasing costs of providing unsecured credit," states a letter sent to a Bank of America credit-card customer and obtained by The Associated Press. Customers are told that they can reject the fee, but will subsequently have their account closed. The deadline to reject the change of terms is Dec. 16. Closing a credit card account can come with repercussions to a person's credit score, since it would lower the amount of available credit a person has access to. Some Bank of America cards, such as airline rewards cards, already come with fees. Chase also charges annual fees on select rewards cards, but a spokeswoman said the company has no plans to test annual fees on a broader basis. Wells Fargo said it does not "speculate on future business policies and practices." --B6-- Bank regulators: Real estate loans biggest concern By MARCY GORDON, AP Business Writer With regulators warning that rising losses on commercial real estate loans pose risks for U.S. banks, senators asked Wednesday for greater attention to be focused on vulnerable smaller banks. The smaller, community banks are especially exposed to commercial real estate loans, which now pose the biggest challenge for many financial institutions and their overseers, Federal Deposit Insurance Corp. Chairman Sheila Bair told lawmakers at a Senate hearing. A year after the financial crisis struck with force, the stability of the banking system has improved but remains fragile, and commercial real estate lending is a key trouble spot, said Federal Reserve Gov. Daniel Tarullo. With more than 7 million U.S. jobs lost in the recession, office space has sat empty and developers have defaulted on their loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years. The Fed and the other federal bank regulators are developing guidelines for banks' modifications of troubled commercial real-estate loans that will call for banks to accurately account for their losses on the loans, Tarullo said. The principle that modifying loans is "often in the best interest of both the financial institution and the borrower" will be part of the guidelines, he said. Bair said she has been discussing with Treasury Department officials the possibility of giving community banks greater access to federal funds under the $700 billion financial bailout program -- which benefited mostly big Wall Street institutions. Officials have been weighing a fresh round of bailouts for banks that were deemed to risky to qualify for earlier aid. Sen. Tim Johnson, D-S.D., chairman of the Senate Banking subcommittee on financial institutions, said he was "concerned about the lending environment, particularly for small businesses" and about smaller banks that remain vulnerable to borrowers' risky levels of debt. But Sen. Bob Corker, R-Tenn., chided Bair and U.S. Comptroller of the Currency John Dugan for supporting bailout funds for banks under their authority. Reflecting a common opposition among Republican lawmakers to the Troubled Asset Relief Program, Corker told the regulators, "I just hate to hear us moving to that mode. I think we should end TARP at the end of the year." New York Democrat Sen. Charles Schumer said recent increases in overdraft and ATM fees by many banks demonstrates the need for "a strong independent agency to protect the interests of consumers," as the Obama administration has proposed. Legislation establishing a Consumer Financial Protection Agency, which would police mortgages, credit cards and other financial products, is fiercely opposed by banks and business groups. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has said he intends to have the panel adopt a measure by week's end. "There are undoubted merits to having a single consumer protection agency," Tarullo said at the hearing, but also a potential risk that it could dampen the availability of credit. "I think there would be costs," he said. Ninety-eight U.S. banks have failed so far this year, many succumbing under the weight of failed real estate loans. The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the highest number since June 1994 in the wake of the savings and loan crisis. Experts say as many as 400 more banks could fail in the next couple of years. "There will be more failures," Bair testified. "It will continue at a pretty good pace this year and next. We are ready for this." The number of failures next year will be closer to the 2009 level than last year's 25, she said. The spate of bank failures has cost the federal deposit insurance fund an estimated $25 billion so far this year and is expected to cost about $100 billion through 2013. The insurance fund has fallen into the red, and the FDIC board recently proposed to have U.S. banks prepay about $45 billion of their insurance premiums -- three years' worth. The FDIC is backed by the government, and deposits are guaranteed up to $250,000 per account. Also the FDIC still has tens of billions in loss reserves apart from the insurance fund. --B7-- FDIC bank fund in the red until 2012 Even as regulators try to replenish deposit insurance fund, it will be over two years before it boasts a positive balance, warns agency chief. By David Ellis, CNNMoney.com staff writer October 14, 2009: 3:48 PM ET NEW YORK (CNNMoney.com) -- The government insurance fund designed to protect consumer bank deposits will likely stay in the red through 2012, Federal Deposit Insurance Corp. chief Sheila Bair said Wednesday. Testifying before members of the Senate Banking Committee, the nation's top commercial bank regulator stressed that her agency was taking immediate steps to replenish the dwindling fund. But she said those efforts would not put the rescue fund in the black until a little more than two years from now at the earliest. The fund has come under severe strain in recent months amid the recent surge in bank failures. Ninety-eight banks have failed so far this year, which has reduced the fund's value to $10 billion from $45 billion a year ago. Last month, the agency painted an even more dire picture, estimating that the fund is currently in the red after taking into account future bank failures it anticipates will happen. That would not be the first time the fund has had a negative balance. During the S&L crisis of the late 1980s and early 1990s, it slipped into the red. FDIC insured deposits are secure With bank failure costs expected to reach $100 billion over the next four years, regulators have been looking at ways to raise quick cash. "The problem we are facing is one of timing," Bair said, according to a copy of her prepared remarks. One proposal currently under consideration would have banks prepay their deposit insurance premiums for the next three years. Under FDIC guidelines, bankers and others have until the end of October to comment on the proposal before it becomes a rule. --B8-- U.S. House panel extends financial reform sessions WASHINGTON, Oct 15 (Reuters) -- The U.S. House of Representatives Financial Services Committee's working sessions on financial regulation reform bills will be extended into next week, said committee Chairman Barney Frank on Thursday. A session that had been scheduled for Friday has been canceled and the committee will reconvene on Tuesday, said Frank, a Democrat, at the opening of Thursday's session. The committee is drafting and is expected to vote on proposed legislation to regulate over-the-counter derivatives, set up a financial consumer protection agency and other matters affecting hedge funds, insurers and brokerage. (Reporting by Kevin Drawbaugh; Editing by James Dalgleish)