Bengaluru/New York — Bank of America (BOA) has reported a steep drop in first-quarter profit as it prepared for billions in potential loan losses amid fears that the coronavirus pandemic will plunge the economy into its worst recession in generations.
Sweeping lockdowns to curb the spread of Covid-19 have shuttered 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 BOA’s reserve build of $3.6bn, the top four US lenders have set aside a combined $14.2bn in loan-loss provisions. BOA’s total provision is more than three times its actual first-quarter loan losses of $1.1bn. However, BOA 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 BOA, 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 centre banks, it is probably in the best position in terms of credit,” UBS analyst Saul Martinez said.
The second-largest US bank by assets used its fortified balance sheet to extend an additional $57bn in loans, or a 6% 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 $3.54bn, or 40c per share, in the first quarter, coming in below the 46c per share predicted by analysts, according to Refinitiv data.
BOA was also the first major bank to participate in the US treasury’s $349bn small business rescue programme, 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 up to April 8 under the Paycheck Protection Programme, totlling $43bn.
But BOA’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.
BOA has already faced lawsuits and backlash from politicians including senator Marco Rubio for its handling of relief programmes.
Said CFO Paul Donofrio in a statement, “During the quarter, we suspended our buyback programme to provide additional support to the economy.”
Reuters
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