Bank of America profit doubles as Covid loan losses less than predicted
Bank of America’s profit more than doubled in the first quarter and topped Wall Street estimates as it released reserves it had set aside to cover potential Covid loan losses.
The second-largest U.S. bank by assets unlocked $2.7bn from its reserves and unveiled a $25bn stock repurchase plan, betting on a swift economic recovery driven by rapid vaccinations.
Consumer banking revenue at the bank, however, fell 12 per cent to $8.1bn in the quarter ended March. Net interest income, a key measure of how much the bank can make from lending, fell 16 per cent to $10.2bn in the quarter.
“While low interest rates continued to challenge revenue, credit costs improved and we believe that progress in the health crisis and the economy point to an accelerating recovery,” Brian Moynihan, the bank’s chief exec said today.
The US Federal Reserve last year brought in ultra-low interest rates to allow for a more rapid recovery from the pandemic-induced recession. However, such low rates eat into the income of lenders like Bank of America, which make profit from the difference between what they earn on loans and pay out on deposits.
Like JP Morgan, which reported earnings yesterday, loans and lease balances fell across the bank’s divisions by seven per cent to $887bn, driven mostly by lower credit card balances and declines in commercial loans.
Bank of America executives said in January they were optimistic the bank could return to loan growth this year. Appetite for new loans waned during the pandemic as customers spent less and saved more and large companies relied on capital markets for funds rather than their bank.
Net profit rose to $7.56bn, or 86 cents per share, from $3.54bn, or 40 cents per share, a year earlier.
Analysts on average had expected a profit of 66 cents per share, according to IBES data from Refinitiv.
Pre-tax, pre-provision profit, seen this quarter as a better gauge of lenders’ true performance, was down 21 per cent from a year earlier. By comparison, JP Morgan said yesterday its first quarter pre-provision profit was up 18 per cent, while Wells Fargo & Co reported at 13 per cent drop.