Bank of America consumer-banking unit suffers Covid hit
Fixed-income trading revenue soars
New York — Bank of America’s (BofA) profit slid 52% as it joined rivals in preparing for an onslaught of consumer defaults spurred by the pandemic’s economic fallout.
Profit at the consumer-banking unit plunged 98% as the coronavirus shuttered much of the US economy and caused tens of millions of Americans to lose their jobs. The company allocated $5.1bn for loan losses in the second quarter, the most since 2010, as Bank of America joined its biggest rivals in predicting pain to come that contrasts with stock market optimism for a quick economic rebound.
Calling it “the most tumultuous period since the Great Depression”, CEO Brian Moynihan said in a statement that “strong capital markets results provided an important counterbalance to the Covid-19-related impacts on our consumer business”.
With its 4,300 branches across the country, BofA is often seen as a bellwether for the US consumer. Government stimulus measures and bank forbearance have kept some individuals and businesses afloat, but the largest US lenders used the first full quarter with the pandemic to prepare for coming pain.
JPMorgan Chase, Wells Fargo and Citigroup set aside almost $28bn of credit-loss provisions when they reported results earlier this week, citing a deteriorating outlook.
While BofA’s provision rose from the first quarter, it came in at roughly half the level of its closest rivals. Executives defended the discrepancy, saying the company has less exposure to the hardest-hit industries and has focused on wealthier consumers in recent years.
“We’re analysing each relationship individually,” CFO Paul Donofrio said. “We’re going through the whole loan portfolio. Our teams have done that. We have really studied this and worked very closely with our customers.”
Shares of Charlotte, North Carolina-based bank slid 3.5% to $23.73 in New York. They’ve declined 33% in 2020.
“Some of the underlying numbers were a little weaker”, particularly net interest income, Atlantic Equities analyst John Heagerty wrote in a note to investors. “With interest rates likely to remain low” and trading and investment-banking revenue “likely to fade” in the second half of the year, “there are obvious concerns about the future earnings trajectory of the bank”.
BofA joined other Wall Street firms in profiting from volatility in financial markets resulting from the pandemic. Fixed-income trading revenue beat forecasts in the second quarter, rising 50% to $3.2bn, while investment banking fees jumped 57% to a record $2.2bn.
Net interest income — revenue from customers’ loan payments minus what the company pays depositors — fell 11% to $10.8bn in the second quarter. On a fully taxable-equivalent basis, the figure was $11bn, falling short of the $11.2bn average estimate of 11 analysts in a Bloomberg survey.
In the consumer business, the bank said it had processed about 1.8-million payment deferrals in 2020, of which 1.7-million were still in place as of July 9. That represents $29.8bn of consumer balances, concentrated in credit cards.
The bank’s efficiency ratio, a measure of profitability, worsened to 60% from 59% in the first quarter and net income fell to $3.53bn from $7.35bn a year earlier. Per-share earnings totalled 37c, beating the 25c average estimate of 23 analysts.