Bank of America Quarterly Profit Falls 22% -- 2nd Update
By Ben Eisen
The biggest U.S. banks have withstood the recession brought by
the coronavirus pandemic, but they haven't been immune to the low
rates the crisis ushered in.
A drop in interest income helped drag down earnings at Bank of
America Corp., which fell 22% in the fourth quarter from a year
earlier. The second-largest bank in the U.S. said Tuesday that its
profit totaled $5.47 billion in the final three months of the year,
versus $6.99 billion a year earlier.
Per-share earnings of 59 cents topped analyst estimates of 55
cents. Still, the year-over-year profit decline was the worst
showing of any big bank to report earnings so far. Goldman Sachs
Group Inc. said Tuesday its fourth-quarter profit jumped 135%.
Rock-bottom interest rates have been a challenge for lenders
including Bank of America, which make money on the difference
between what they pay to depositors and what they earn from
lending. Bank of America's net interest income fell 16% from a year
earlier to $10.25 billion, though it was up slightly from the third
Deposits at the bank grew by about a quarter over the past year,
with nervous consumers and companies looking for a safe place to
stash their money. But the economic fallout from the coronavirus
crisis has sapped customer demand for loans. The bank's book of
outstanding loans and leases, which had initially grown at the
beginning of the pandemic, shrunk to $927.86 billion at year-end,
its smallest in more than three years.
Chief Financial Officer Paul Donofrio said on a call with
journalists that he expects loan balances to rise this year. "I
think it will start slow and be more in the back half of the year,"
Wall Street powered earnings at JPMorgan Chase & Co. and
Citigroup Inc. despite relatively weak showings in their consumer
banks. Buoyant markets also benefited Bank of America's trading
arm, but not as much as its rivals. 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 brought in less revenue
than a year earlier, though its equity trading revenue was up.
The investment-banking division posted fee growth of 26% from a
year ago, fueled by underwriting of initial public offerings. Total
fees of $1.86 billion compared with $1.47 billion a year
Goldman, meanwhile, said Tuesday that profit was lifted by a 23%
rise in its trading revenue and 68% jump 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.
Noninterest income fell 4% to $9.85 billion and noninterest
expenses were 5% higher than a year earlier, totaling $13.93
Like JPMorgan and Citigroup, Bank of America released some of
the reserves it had set aside to bulwark against bad loans. The
bank said it released $828 million of its reserves, a small share
of the money it has stowed away to cover bad loans but a sign that
its executives believe there may not be as much consumer and
business distress as initially thought.
The largest banks spent the first part of last year building up
reserves to prepare for a wave of loan 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
The Federal Reserve, which had restricted banks' returns to
shareholders last year, told them last month they could once again
buy back their own stock, with limits. Bank of America said Tuesday
that its board authorized a $2.9 billion repurchase plan for the
While the continued spread of Covid-19 has put millions out of
work and left many unable to pay their bills, Americans overall
have continued to spend. "We continued to see signs of a recovery,
led by increased consumer spending, stabilizing loan demand by our
commercial customers, and strong markets and investing activity,"
Chief Executive Brian Moynihan said in a statement.
The bank charged off $881 million of its loans in the quarter,
down about 8% from a year earlier, though net charge-offs increased
in its commercial banking arm from a year earlier.
Bank stocks started the year strong, in part on the prospect of
rising interest rates, though they fell sharply Friday along with
the broader markets. The KBW Nasdaq Bank Index has climbed about 9%
this year, versus a 1% rise in the S&P 500.
Write to Ben Eisen at email@example.com
(END) Dow Jones Newswires
January 19, 2021 10:33 ET (15:33 GMT)
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