A Bank of America ATM is pictured in the Manhattan borough of New York.CARLO ALLEGRI/Reuters
Bank of America Corp. reported a steep drop in first-quarter profit as it prepared for billions in potential loan losses amid fears that the coronavirus pandemic would plunge the economy into its worst recession in generations.
Sweeping lockdowns to curb the spread of the virus have shutterred businesses around the world, forced dramatic interest rate cuts and put nearly 17 million Americans out of work, prompting Wall Street banks to set aside billions to cover for potential losses.
Including BofA’s reserve build of $3.6-billion, the top four U.S. lenders have set aside a combined $14.2 billion in loan loss provisions. BofA’s total provisions is more than three times its actual first-quarter loan losses of $1.1 billion.
However, BofA is still growing its loan book in the hope that it can position itself as part of the solution to this financial crisis, rather than the culprit as in 2008.
Even with all the challenges, analysts expect BofA, known as a more conservative bank, to weather the downturn better than its peers due to its smaller exposure to credit cards and tighter credit standards.
“Of the three money center banks they are probably in the best position in terms of credit,” UBS analyst Saul Martinez said in an interview.
The second-largest U.S. bank by assets used its fortified balance sheet to extend an additional $57 billion in loans, or a 6 per cent increase during the quarter, as cash-strapped companies tapped credit lines and sought new loans to help tide them through the crisis.
Overall, net income applicable to common shareholders fell to $3.54 billion, or 40 cents per share, in the first quarter, coming in below the 46 cents per share predicted by analysts, according to Refinitiv data.
Bank of America was also the first major bank to participate in the U.S. Treasury’s $349 billion small business rescue program, while other banks were hesitant to begin accepting applications due to scant details from government officials.
The bank started accepting applications within hours of the official launch and said it received 279,000 small business loan applications through April 8 under the Paycheck Protection Program, totalling $43 billion.
But BofA’s eagerness to lend a hand has not earned it much credit from critics who say banks can do more to help small businesses customers who say they aren’t getting the help they need.
Bank of America has already faced lawsuits and backlash from politicians including Senator Marco Rubio for its handling of relief programs.
“During the quarter, we suspended our buyback program to provide additional support to the economy,” Chief Financial Officer Paul Donofrio said in a statement.
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