Bank of America profits weighed down by low interest rates
America’s largest banks weathered the recession triggered by the coronavirus pandemic, but they were not immune to the low interest rates caused by the crisis.
A drop in interest income helped to lower profits to
which fell 22% in the fourth quarter. America’s second-largest bank said on Tuesday that its profits stood at $ 5.47 billion in the last three months of the year, up from $ 6.99 billion a year earlier.
Earnings per share of 59 cents topped analysts’ estimates by 55 cents. Yet the year-over-year decline in profits has been a major bank’s worst performance to report profits so far.
said Tuesday it was fourth quarter profit jumped 135%.
Lower interest rates have been a challenge for lenders, including Bank of America, who make money on the difference between what they pay depositors and what they earn by lending. Bank of America’s net interest income fell 16% from a year ago to $ 10.25 billion, although it was up slightly from the third quarter.
Bank deposits have grown by about a quarter over the past year, as consumers nervous and businesses seek a safe place to store their money. But the economic fallout from the coronavirus crisis has undermined customer demand for loans. The bank’s outstanding loan and lease portfolio, which initially increased at the start of the pandemic, fell to $ 927.86 billion by year-end, its smallest in more than three years.
The Federal Reserve lower its benchmark interest rate to near zero in March in an attempt to avoid an economic collapse. Bank of America is particularly dependent on US interest rates given its large base of US deposits and loans.
CFO Paul Donofrio said on a call with reporters that he expects loan balances to increase this year. “I think it will start slowly and play out more in the second half of the year,” he said.
despite relatively weak performance in their consumer banks. Growth markets have also benefited the commercial arm of Bank of America, but not as much as its competitors. Adjusted trading revenue of $ 3.06 billion in the fourth quarter was up 7% from $ 2.86 billion a year ago. The bank’s fixed income traders generated less income than a year earlier, although its equity trading income increased.
The investment banking division posted fee growth of 26% over last year, fueled by the underwriting of initial public offerings. Total fees of $ 1.86 billion compared to $ 1.47 billion a year earlier.
Goldman, meanwhile, said Tuesday its profits were boosted by a 23% increase in trading income and a 68% increase in underwriting fees.
Bank of America’s revenue totaled $ 20.1 billion in the fourth quarter, down 10% from the fourth quarter of 2019. That missed the $ 20.58 billion expected by analysts polled by FactSet.
Non-interest income fell 4% to $ 9.85 billion and non-interest expense increased 5% from the previous year, to a total of $ 13.93 billion .
Like JPMorgan and Citigroup, Bank of America released some of the reserves it had set aside to protect against bad debts. The bank said it released $ 828 million, a small chunk of the money it hid to cover bad debts, but a sign its executives think there may not be as much distress consumers and businesses than initially thought.
““We continued to see signs of recovery, led by increased consumer spending, stabilizing demand for loans from our business customers, as well as strong markets and investment activity.”“
The biggest banks spent the first part of last year build up reserves to prepare for a wave of defaults. While Bank of America processed some 2 million deferrals when the pandemic hit, only 77,000 of them were still in place at the end of last year.
The Fed, which limited bank returns to shareholders last year, told them last month it could again buy back their own shares, with limits. Bank of America announced Tuesday that its board of directors has authorized a $ 2.9 billion buyback plan for the first quarter.
While the continued spread of Covid-19 put millions of people out of work and left many unable to pay their bills, Americans on the whole kept spending. “We continued to see signs of recovery, led by increased consumer spending, stabilizing demand for loans from our business customers, and strong markets and investment activity,” said Managing Director Brian Moynihan in a statement.
The bank canceled $ 881 million of its loans in the quarter, down about 8% from a year ago, although net write-offs increased in its commercial banking arm from a year ago .
Bank of America shares fell 0.7% on Tuesday. Bank shares started the year strong, partly on the prospect of rising interest rates. The KBW Nasdaq Bank index has climbed around 9.7% this year, compared to a rise of 1.1% for the S&P 500.
Write to Ben Eisen at [email protected]
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