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Bank of America's Profit Slides as It Braces for Loan Losses

Bank of America posts second-quarter earnings about half of what it earned a year ago and joins other banks in beefing up its reserves for big loan losses.

Bank of America  (BAC)  on Thursday posted a second-quarter profit that was roughly half of what it earned a year ago and warned that it was bracing for substantial loan losses amid the coronavirus pandemic that has temporarily stalled what banks see is a pending wave of consumer and business loan defaults.  

Bank of America said it earned $3.5 billion, or 37 cents a share, roughly half the $7.3 billion, or 74 cents a share, it earned in the comparable year-ago period. Analysts polled by FactSet had been expecting earnings of 28 cents a share. 

Revenue net of interest expense fell 3% to $22.3 billion from $23.1 billion a year ago.

Provisions for credit losses, meanwhile, a measure of what the bank expects to potentially write off in soured loans and other investments, rose to $5.1 billion, the bulk of which was driven by a $4 billion reserve build, the bank said. That was on top of the nearly $4.8 billion it set aside at the end of its first quarter.

Calling it “the most tumultuous period since the Great Depression,” CEO Brian Moynihan said in a statement that “strong capital markets results provided an important counterbalance to the Covid-19-related impacts on our consumer business.”

Indeed, the Charlotte-based bank pointed to record investment banking fees as among the offsets to pandemic induced losses, which generated net income of $726 million in its global banking unit. That came on top of net income of $1.9 billion from the bank's global markets division, driven by $4.2 billion in sales and trading revenue.

However, profit at the consumer-banking unit plunged 98% as the coronavirus shuttered much of the U.S. economy and caused tens of millions of Americans to lose their jobs. The bank’s net interest income fell 11% to $10.85 billion, while its noninterest income rose 5% to $11.48 billion.

Combined with the billions in credit-loss provisions, the quarterly earnings snapshot suggests Bank of America is joining other large banks in doing what it needs to do to prepare for the coming economic pain caused by the pandemic - namely loan defaults by the billions. 

JPMorgan Chase  (JPM) , Wells Fargo  (WFC)  and Citigroup  (C)  have already set aside nearly $28 billion of credit-loss provisions. Wells Fargo alone earlier this week reported not only earnings significantly below last year’s numbers but a surging balance sheet reflecting a dash to cash - and also massive loan-loss provisions in anticipation of loan defaults.

Shares of Bank of America were down 3.33% $23.78 in Thursday trading.