Picture: REUTERS
Picture: REUTERS

New York — Bank of America (BofA) executives on Wednesday joined other US bank officials predicting an economic recovery would improve business in the quarters ahead, after lower interest rates fuelled a miss on third-quarter revenue.

The Charlotte, North Carolina-based lender set aside lower provisions for potential loan losses, mirroring other Main Street peers such as Goldman Sachs, JPMorgan and Citigroup that also lowered reserves.

“Our decision to add less to our credit reserves this quarter than in the two previous quarters was largely based on an improving economy relative to 90 days ago,” BofA CFO Paul Donofrio said on a call.

JPMorgan executives on Tuesday sounded a cautiously optimistic note that the coronavirus pandemic will not send the economy into a tailspin.

BofA set side $1.4bn to meet future losses in its commercial loan portfolio in the quarter, far less than the $5.1bn it provided for during the June quarter. Profit fell but beat estimates.

“We don't expect to see a meaningful increase in net charge-offs to mid next year, and we expect that the reserve builds are behind us,” CEO Brian Moynihan said in a post-earnings conference call.

Revenue in its core consumer bank fell 17% to $8bn in the third quarter, mainly due to lower interest income and reduced credit card activity. Its loan book shrank for the first time since 2015, according to Refinitiv data.

Net interest income at the bank, a key measure of how much it can make from lending, sank 17%, showing the effects of the US Federal Reserve's moves to slash interest rates to near-zero and promise to keep them there to help spur growth.

The bank is especially vulnerable to rate movements because of the composition of its balance sheet, weighing on overall revenue that missed estimates.

The lender also posted weak results in its sales and trading arm, in stark contrast to Goldman Sachs, JPMorgan and Citigroup, which reported a 29%, 30% and 16% rise in trading revenue on Wednesday and Tuesday.

BofA's adjusted sales and trading revenue rose 4% to $3.3bn.

“Unfortunately loan demand is what it is and the combination of pay-downs of credit facilities (good thing), mortgage prepays, open capital markets and overall cautious market conditions led to a 5% decline in loans and rates are really pressuring revenues (down 7%) and that's a bigger part of the BofA story. Feels sluggish, but not far off from expectations,” said Evercore ISI analyst Glenn Schorr.

The second-largest US bank by assets posted adjusted revenue of $20.45bn, compared with analysts' average estimate of $20.81bn, according to IBES data from Refinitiv.

Net income applicable to common shareholders fell 15.8% to $4.44bn, or 51c  per share, in the quarter ended September 30, but beat estimates of 49c. Shares of the bank were down nearly 3% in New York.


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