Friday, June 2, 2023

Bank of America profits surge as it releases $ 828 million in reserves

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Bank of America’s fourth quarter net income increased by nearly $ 600 million, driven by the release of loan loss reserves, strong stock trading activity and soaring net interest income for the first time in over a year.

Demand for loans remains weak, however, as the Covid-19 pandemic continues, leaving the bank with limited options for deploying capital. Despite an increase in average deposits of $ 42 billion from the third quarter, average lending declined by $ 39 billion. The increase in interest income is explained by the decrease in interest expense and by the investment of deposits in bonds.

Bank executives expressed optimism that this trend would reverse in 2021. “In the fourth quarter, we continued to see signs of recovery, driven by increased consumer spending, stabilizing demand from our business clients and strong markets and investment activity, ”said Brian Moynihan, Managing Director.

“We are emerging from this health crisis and so with each quarter of this we hope it will be easier,” said Paul Donofrio, CFO, noting the improvement in loan demand at the end of the quarter. . “We should be able to keep increasing net interest income because we add deposits and loans.”

The bank’s quarterly net profit reached $ 5.5 billion from the September quarter. Earnings per share, at 59 cents, were slightly better than the 54 cents Wall Street analysts had expected. Total revenue, at $ 20.1 billion, is below expectations of $ 20.5 billion.

Financial markets revenues increased 7 percent, driven by a 30 percent increase in equity trading revenues from the fourth quarter of the previous year. Fixed incomes fell by 5 percent. Trading results were not as strong as JPMorgan Chase or Citigroup, which saw increases of 32 and 57 percent in equity trading income, respectively.

Jeff Harte of Piper Sandler said the results were “a little disappointing if you write off the loan loss reserves.” . . commercial income was a little disappointing and expenses a little higher than expected ”.

BofA released $ 828 million in loan reserves in the fourth quarter, less than JPMorgan or Citi, which freed up $ 3 billion and $ 1.5 billion respectively in reserves. BofA had set aside more than $ 10 billion in additional reserves since the start of the Covid-19 crisis.

The company said it plans to repurchase $ 3.2 billion of shares by the end of the first quarter, the maximum amount authorized by the Federal Reserve under new guidelines.

BofA shares fell 1.6% on Tuesday on the pre-market. Bank stocks have seen strong gains in recent months, as a rise in long-term rates and a steepening of the yield curve, along with expectations of rising inflation, suggest that credit spreads should improve. .

BofA shares are up nearly 40% from their October lows and are just shy of their pre-pandemic highs.


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