Bank of America and Citigroup posted better-than-expected quarterly earnings on lower credit losses, but their shares fell as the banks highlighted the challenge of boosting revenue in a stagnant economy.

Revenue is down from a year earlier and the banks, like their rivals, are grappling with how their business will be affected by the landmark financial reform bill passed by the US Congress.

Executives at Bank of America and Citigroup said the impact of the bill is uncertain. Like JPMorgan Chase & Company, they were unable to quantify the possible costs for their business.

The prospects for banks to lend more look bleak as US unemployment hovers around 10 per cent and a report showed consumer sentiment has slipped from a near two-and-half-year high.

Bank of America and Citi said on Thursday investment banking profits were down, a bleak sign for Goldman Sachs Group and Morgan Stanley, whose results are due next week.

Bank of America and Citigroup said credit costs broadly eased in the second quarter, allowing them to put less money aside against future losses.

Loans at Bank of America and Citi were down compared with a year earlier, and analysts and investors expressed concern about bank executives' comments that credit demand is still weak.

In recent quarters, banks have depended on their investment banking units to perform well, while their consumer business was hit by rising losses.

Now, as consumer loan losses are less of a worry, trading revenue has suffered as stock markets were hit by a 'flash crash' in the US and sovereign debt worries in Europe.

Revenue at Bank of America's investment bank slumped to $6 billion in the second quarter from $9.8 billion in the first quarter. Citigroup also said its securities and banking revenue fell, 26 per cent from the first quarter to $6 billion.

These units were also hurt by a tax the banks paid on UK bankers' bonuses. The tax looks set to cost five major US banks with businesses in London about $2.5 billion in all.

Bank of America reported net income of $3.1 billion, or 27 cents a share, down from $3.2 billion, or 33 cents a share, a year earlier. Analysts had expected 22 cents a share.

Citigroup reported its second profitable quarter, posting net income of $2.7 billion, or nine cents a share, down from $4.3 billion, or 49 cents per share, a year earlier.

Analysts had expected five cents a share, according to Thomson Reuters.

JPMorgan on Thursday reported a higher-than-expected second-quarter profit of $4.8 billion, up 76 per cent from a year earlier.-Reuters