Low Rates, Fewer Loans Squeeze BofA’s Fourth Quarter Profits
The Bank of America said on Tuesday that quarterly profit fell sharply amid very low interest rates and a declining loan portfolio.
For the fourth quarter, the bank’s net interest income fell 16% from a year earlier to $ 10.25 billion, contributing to a 22% drop in profit to $ 5.47 billion , compared to $ 6.99 billion.
Earnings of 59 cents a share topped analysts’ estimates of 55 cents, but the year-over-year decline in profits was the worst result of any major bank to report profits so far. Revenue fell 10% to $ 20.2 billion, missing estimates of $ 20.7 billion.
CFO Paul Donofrio noted that Bank of America’s deposits increased by $ 361 billion and that the bank also improved its capital ratios and increased its liquidity to record levels, excluding loans.
“In the fourth quarter, we continued to see signs of recovery, driven by increased consumer spending, stabilizing demand for loans from our business customers and strong markets and investment activity,” said the CEO Brian Moynihan.
But according to the Wall Street Journal, “The economic fallout from the coronavirus crisis has undermined customer demand for loans. The bank’s outstanding loan and lease portfolio, which initially increased at the start of the pandemic, fell to $ 927.86 billion by year-end, its smallest in more than three years. “
The dynamic markets have boosted the commercial arm of Bank of America, but not as much as its rivals. Fourth quarter adjusted trading income of $ 3.06 billion was up 7% from $ 2.86 billion a year ago, while fixed income income fell 5% to $ 1.74 billion, below analysts’ estimate of $ 2.11 billion.
The bank’s results were helped by a release of $ 828 million from its reserves for expected loan losses. “As the economy improves – albeit on an uneven trajectory – most of the worst economic scenarios have been avoided, giving banks the confidence to release some of their reserves into profits,” the WSJ said.
Bank of America charged $ 881 million of its loans in the quarter, down about 8% from the previous year.
“The latest stimulus package, the continued progress on vaccines and our talented teammates… position us well and the recovery continues,” Moynihan said.