Bank of America’s First-Quarter Profit Falls By 45%

Many major banks expect falling profits until at least the third quarter of 2020.

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Bank of America’s first-quarter profits fell short of expectations, posting at 40 cents per share. This yielded a profit of $4.01 billion. Analysts had previously forecast 46 cents a share. 

The multinational bank headquartered in Charlotte, North Carolina had put aside $3.6 billion in reserves in expectation of loan losses due to the coronavirus. Paul Donofrio, Bank of America’s Chief Financial Officer, said that low-interest rates will impact the bank’s net income from interest and that’s what drives revenue for the bank.

Three of the four main divisions of the bank have seen steep drops in profits due to the pandemic. Its consumer banking division had a 45 percent decline in profits, while its wealth management division dropped by 17 percent. Its global banking division saw nearly no profit. However, Bank of America’s trading division saw an increase in its profits and gained nearly 33 percent.

Even though the bank’s shares fell by 6.5 percent, trading surpassed expectations by over $500 million while Bank of America’s revenue nearly matched its expectations at $22.8 billion. Fixed-income traders generated $2.7 billion in revenue and equities traders produced about $1.7 billion.

Donofrio said he expects that loan losses will likely continue to climb well into next year. He also said he expects net interest income to recover sometimes after the third quarter. The bank netted $12.3 billion in interest income for the first quarter and it’s expected that it’ll fall to 11 billion during the second quarter.

Bank of America CEO Brian Moynihan said, “Our results reflect the strength of our balance sheet, the diversity of our earnings, and the resilience of our teammates to serve clients around the world. Despite increasing our loan loss reserves, we earned $4 billion this quarter.”

Wells Fargo and JP Morgan Chase also posted first-quarter profit losses and expect a surge of loan defaults in the near future. However, JPMorgan had record trading revenue during the quarter.

Overall, bank stocks are spiraling down because of the economic effects of the coronavirus. Many investors have been selling shares in anticipation of loan defaults.

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