A Bank of America sign in New York, on July 16, 2018.LUCAS JACKSON/Reuters
Bank of America Corp. BAC-N provided a bullish outlook after reporting a smaller-than-expected 13-per-cent fall in first-quarter profit on Monday, as growth in consumer lending overshadowed a decline in global deal making.
Chief executive Brian Moynihan said Bank of America customers had spent at the highest level ever recorded for the first quarter, representing a double-digit percentage increase from a year ago.
“Could a slowdown in the economy happen? Perhaps. But right now, the size of the economy is bigger than prepandemic levels. Consumer spending remains strong, unemployment is low and wages are rising,” Mr. Moynihan told analysts on a conference call.
Mr. Moynihan’s comments contrasted with those of JPMorgan Chase & Co. chief executive Jamie Dimon, who last week warned of economic uncertainties arising from Russia’s invasion of Ukraine and soaring inflation.
Shares in Bank of America were up 3.1 per cent by midday.
The bank said its net interest income, the difference between what it earns from lending and pays out on deposits, would grow by US$650-million in the second quarter. The U.S. Federal Reserve’s rate hikes are expected to help banks’ bread-and-butter business – taking deposits and lending.
Because of its high proportion of consumer deposits, Bank of America is likely to benefit more from rate rises than rivals, analysts say. Profit was also boosted by the release of US$362-million from its reserves it had set aside for bad loans.
The bank reported a 9-per-cent rise in consumer banking revenue to US$8.8-billion in the quarter ended March.
Profit applicable to common shareholders fell nearly 13 per cent to US$6.6-billion, or 80 US cents a share, for the quarter ended March 31 from US$7.56-billion, or 86 US cents a share, a year earlier.
Analysts on average had expected a profit of 75 US cents a share, according to the IBES estimate from Refinitiv.
The strong performance by the consumer business overshadowed a weaker performance in investment banking. Investment banking fees plunged 35 per cent to US$1.5-billion in the quarter.
Big U.S. banks benefited from a deal-making boom last year after the Federal Reserve pumped liquidity into capital markets to mitigate the economic impact of the COVID-19 pandemic.
This year, however, investment banking businesses have taken a hit as geopolitical turmoil fuelled by Russia’s invasion of Ukraine slammed the brakes on last year’s breakneck pace of deal-making and a boom in the IPO market.
Bank of America’s global banking segment, which houses the investment banking business, reported US$165-million of provisions for credit losses, primarily because it built reserves tied to its exposure to Russia and a growth in loans.
The bank said it has approximately US$700-million in total exposure to Russia, comprised mostly of loans to nine clients and a “de minimis” amount of counterparty risk. Executives said it has been reducing its exposure to Russia since 2015 in response to the Russia’s invasion of Crimea.
Bank of America rounds out a mixed earnings season for Wall Street banks with peers JP Morgan Chase, Goldman Sachs, Wells Fargo, Morgan Stanley and Citigroup posting profit declines.
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