Bank of America profit falls on $3.7bn in charges

Bank of America’s fourth-quarter profit shrank as the lender took $3.7bn in one-off charges on Friday, and its finance chief expressed optimism about the US economic outlook.

Prospects for the US economy have brightened after the Federal Reserve paused interest rate increases late last year. It is now expected to cut rates this year.

“We feel pretty good about the economy,” CFO Alastair Borthwick said on a call with reporters.

“The consumers still have plenty of firepower” in a strong labour market, he said.

Shares of the second-largest US lender fell nearly 3% in premarket trading on Friday after it posted net income of $3.1bn, or 35c a share, for the three months ended December 31. That compares with $7.1bn, or 85c a share, a year earlier.

Excluding two charges related to replenishing a fund for bank failures and phasing out an interest rate benchmark used in some commercial loan contracts, the bank reported a profit of 70c, slightly above LSEG estimates of 68c.

BofA managed to offset some declines with strong gains in trading and investment banking.

Trading revenue rose 1% to $3.8bn in the fourth quarter, driven by a 12% jump in revenue from equities, while a pickup in deal making in the fourth quarter pushed up investment banking fees 7% to $1.1bn.

Interest income

The bank's net interest income (NII) — the difference between what banks earn from loans and pay to depositors — fell 5% to $13.9bn after a windfall year in 2023.

BofA expects NII to dip to a trough in the first half of this year and grow in the second half, CEO Brian Moynihan told investors last month, as lower rates push down the interest income that banks make off loans.

Loans are expected to grow at low to mid-single-digit percentage in 2024, after expanding nearly 0.8% in the fourth quarter.

BofA took a pretax charge of $2.1bn in the fourth quarter to pay a “special assessment” fee to replenish a Federal Deposit Insurance Corporation (FDIC) fund that was drained by $16bn to cover depositors of two banks that collapsed in 2023.

The bank also took a charge of about $1.6bn in the fourth quarter as it phases out a Bloomberg interest rate benchmark used in some commercial loan contracts. That amount is expected to be recognised back into its interest income through 2026, BofA said.

Bank of America also reported lower unrealised losses on securities held until maturity, helped by a rally in bond markets. The bank had unrealised losses of almost $98bn in the fourth quarter, down from paper losses of $131.6bn in the third quarter.

Net charge-offs, or debts that are unlikely to be recovered, rose to $1.2bn in the fourth quarter from $931m in the third quarter, mainly from credit cards and office real estate.

Reuters