Bank of America’s Profits Fall. Covid-19 Loan Losses Will Rise – Barron’s

Bank of America’s Profits Fall. Covid-19 Loan Losses Will Rise  Barron’s

Photograph by Mark Kauzlarich/Bloomberg

Bank of America reported a smaller profit than Wall Street was looking for due to an increase in credit expenses resulting from the Covid-19 pandemic. Coronavirus-induced loan losses are no surprise, but the shares still fell about 2.7% in premarket trading.

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

For the banking giant, $4 billion works out to about 40 cents in per- share earnings. Analysts had predicted a per-share profit about 54 cents. And embedded in the results was a $3.6 billion provision for anticipated credit losses. The consensus view among analysts had declined from a profit of about 72 cents a share over the past few weeks, but forecasting the precise impact of Covid-19 is proving difficult for the Street.

Credit Suisse analyst Susan Roth Katzke, for instance, modeled 36 cents in per-share earnings. She forecast $4.1 billion in new credit costs, so the $3.6 billion figure was, by her estimates, a little better than expected.

Bank of America (ticker: BAC) has more than $1 trillion worth of loans on its books.

The Wednesday numbers mirrored results that JPMorgan Chase (JPM) and Wells Fargo (WFC) reported Tuesday. Higher-than-foreseen credit losses resulted in smaller-than-expected profits at both those banks. And although both stocks opened higher, shares traded lower throughout the day. J.P. Morgan shares fell 2.7%. Wells stock dropped 4%.

In its earnings filings, Bank of America also committed to not making any Covid-19 related layoffs in 2020. It outlined several other actions—such as overdraft refunds—taken to help employees and clients through this difficult stretch.

As of April 8, Bank of America had processed applications for 279,000 Small Business Administration loans under the Paycheck Protection Program, worth about $43 billion.

Bank of America stock was down 33% year to date, as of Tuesday’s closing price, worse than the 16% and 12% respective declines of the Dow Jones Industrial Average and S&P 500 over the same span.

The entire sector has seen steep losses. The KBW Bank Index is down about 37% year to date. Investors usually worry about bank profits when the economy heads into a recession.

Write to Al Root at allen.root@dowjones.com

Source: barrons.com

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