April 15, 2020
Loan-loss reserves
Bank of America's first-quarter profit fell 45% after the bank set aside $4.76 billion for loan losses, its largest provision since 2010. JPMorgan Chase and Wells Fargo also recorded their highest provisions in a decade. Together, the three lenders reserved more than $17 billion for potential defaults.
Net income fell to $4.01 billion from $7.31 billion a year earlier. Earnings per share were 40 cents, below the 54-cent average analyst estimate. Bank of America's first-quarter credit-loss provision was almost five times the roughly $1 billion it reserved a year earlier. The increase also reflected CECL, the accounting standard that requires banks to recognize expected credit losses earlier in the cycle.
Trading and rates
Trading revenue was stronger than expected as volatility lifted client activity across markets. That helped offset part of the pressure from credit provisioning.
Net interest income moved lower. Revenue from customer loan payments minus what the bank pays depositors fell 2% to $12.1 billion. On a fully taxable-equivalent basis, net interest income was $12.3 billion, above the $11.7 billion analyst estimate. Chief Financial Officer Paul Donofrio had already said in January that net interest income would likely decline in the first half as Federal Reserve rate cuts flowed through results.
Capital and market reaction
Chief Executive Officer Brian Moynihan said Bank of America still earned $4 billion in the quarter, held a buffer above its most stringent capital requirement, and ended the period with more liquidity than it had at the start.
Shares fell 2.6% to $23.11 in early New York trading and were down 33% for the year through the prior day. The bank's efficiency ratio was 59%, unchanged from the fourth quarter of 2019. The quarter was mainly a credit-reserve story. Trading helped, but investors focused on how much more the bank might need to set aside if the shutdown continued to pressure households and businesses.