BofA says it is better equipped to handle recession as loan loss provisions decline
(Reuters) – Bank of America Corp executives joined the chorus of U.S. bank officials on Wednesday predicting that an economic recovery would improve business in the coming quarters, after lower interest rates led to a cut third quarter revenue.
The Charlotte, North Carolina-based lender set aside lower provisions for potential loan losses, as other Main Street peers such as JPMorgan Chase and Citigroup have also reduced their reserves.
“Our decision to add less to our credit reserves this quarter than in the previous two quarters was largely based on an improvement in the economy compared to 90 days ago,” said Chief Financial Officer of Bank of America, Paul Donofrio, on a call.
JPMorgan executives on Tuesday issued a cautiously optimistic note that the coronavirus pandemic will not send the economy into the worst possible spin.
Bank of America set aside $ 1.4 billion to meet future losses to its commercial loan portfolio in the quarter, far less than the $ 5.1 billion forecast in the June quarter. Profit fell but exceeded estimates.
“We don’t expect a significant increase in net expenses by the middle of next year, and we expect reserve building to be behind us,” Managing Director Brian Moynihan said during a conference call after the results.
Revenues at its main consumer bank fell 17% to $ 8 billion in the third quarter, mainly on lower interest income and squeezing credit card activity. Its loan portfolio shrank for the first time since 2015, according to data from Refinitiv.
The bank’s net interest income, a key measure of what it can earn from loans, fell 17%, showing the effects of measures taken by the US Federal Reserve to cut interest rates to near zero and promise to maintain them to stimulate growth.
The bank is particularly vulnerable to rate movements due to the composition of its balance sheet, weighing on overall revenues which have missed estimates.
The lender also posted weak results in its sales and trading arm, unlike JPMorgan and Citigroup, which on Tuesday reported a 30% and 16% increase in trading revenue.
Bank of America’s adjusted sales and transaction revenue rose 4% to $ 3.3 billion.
“Unfortunately, the demand for loans is what it is and the combination of repayments on credit facilities (good thing), prepayments of mortgages, open capital markets and generally prudent market conditions has resulted in a downturn. 5% of loans and rates put real pressure on income (down 7%) and that’s a bigger part of BofA’s story. Feels slow, but not far from expectations, ”said Glenn Schorr, Evercore ISI analyst.
The second-largest U.S. bank in terms of assets posted adjusted revenue of $ 20.45 billion, compared to an average analyst estimate of $ 20.81 billion, according to IBES data from Refinitiv.
Net income applicable to common shareholders fell 15.8% to $ 4.44 billion, or 51 cents per share, in the quarter ended September 30, but topped estimates by 49 cents.
The bank’s shares fell nearly 3% at the start of the session.
Reporting by Niket Nishant in Bengaluru and Imani Moise in New York; Written by Anirban Sen; Editing by Sriraj Kalluvila