Bank of America Profit Takes Hit From Large Credit Loss Provision

Bank of America reveals a dark snapshot of a first quarter that pummeled its finances and forced it to bulk up its war chest amid the worst stock market selloff in generations.
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Bank of America  (BAC) - Get Report on Wednesday revealed a dark snapshot of a first quarter that pummeled its finances and forced it to bulk up its war chest amid the worst stock market selloff in generations.

The second-biggest lender after JPMorgan Chase  (JPM) - Get Report posted provisions for credit losses of $4.8 billion, even more than some of its counterparts, as the coronavirus pandemic shuttered the U.S. economy and pummeled stock and bond markets.

The bank said it earned $4 billion, or 40 cents a share, vs. $7.3 billion, or 70 cents a share, in the comparable year-ago period. Analysts polled by FactSet were expecting per-share earnings of 49 cents. Revenue came in at $22.8 billion, in line with analysts' forecasts of $22.7 billion.

“Despite increasing our loan loss reserves, we earned $4 billion this quarter, maintained a significant buffer against our most stringent capital requirement, and ended the quarter with more liquidity than when we began," CEO Brian Moynihan said in a statement.

The numbers offer the first ugly glimpse at how the coronavirus pandemic has impacted America’s largest lenders. JPMorgan and Wells Fargo  (WFC) - Get Report on Tuesday reported not only earnings significantly below last year’s numbers but surging balance sheets reflecting a dash to cash.

Wells Fargo set aside some $4 billion in loan-loss provisions in the first quarter related to the Covid-19 pandemic and corresponding economic fallout, almost five times what it allocated a year ago and the most in a decade, leading to a near-90% drop in net income.

In the consumer banking segment, Bank of America said it earned $1.8 billion for the quarter, down $1.4 billion, or 45%, from a year ago, "as solid client activity was more than offset by an increase in loan loss reserves and the impact of lower interest rates."

In its global wealth and investment management division, meanwhile, the bank earned $866 million, down $177 million, or 17%, mainly driven by the bank's Covid-19-releated reserve build and its impact on the balance sheet.

Across all business lines, total client balances declined 6% to $2.7 trillion, "driven by lower end-of-period market valuations," the bank said. Assets-under-management flows - money moving out of the bank's coffers - were $7 billion from the fourth quarter of 2019 and $26 billion vs. the year-ago quarter. 

Shares of Bank of America were down 5.14% at $22.91 in trading on Wednesday. Shares of the bank surged more than 40% last year, exceeding the 29% gain in the S&P 500.