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(Bloomberg) – Bank of America Corp. struggles to rebuild loan income as consumers, dripping with cash from government stimulus programs, avoid taking on new loans.
Loans and leases in the consumer banking unit fell 12% from the previous year. Net interest income, on a fully taxable equivalent basis, stood at $ 10.3 billion in the last quarter, the bank said on Wednesday. That metric – revenue from customer loan payments minus what the company pays to depositors – was lower than the $ 10.5 billion estimated by analysts.
While government aid programs during the pandemic helped big lenders like Bank of America dodge widespread defaults, they also meant that many consumers and businesses did not need to take new loans. or use lines of credit. This trend, along with lower interest rates expected to stimulate the economy, weighed on the profitability of banks’ core lending activities. While Bank of America loan balances remained lower from a year ago, they increased from the first quarter – the first sequential increase in a year.
“Both net interest income and net interest margin appear small,” said Alison Williams, analyst at Bloomberg Intelligence. “The improvement is probably not as big as some had hoped. “
CEO Brian Moynihan said Bank of America is seeing organic growth reappear as vaccination campaigns progress and the economy recovers.
“Companies need to build inventory and hire workers to meet growing customer demand,” he said on a conference call with analysts. “This virtuous circle of hiring workers and covering customer expenses will help stimulate the economy and hopefully lead to increased use of the lines.”
Wall Street banking helped fill the void as turbulent markets boosted trading volumes. Companies looking to build up cash, meanwhile, have turned to debt and equity financing, and a combination of cheap financing for buyers and attractive valuations for sellers has spurred a wave of acquisitions.
Bank of America’s trading revenue fell 14% in the last quarter, while investment banking fees fell 1.7%. Financial advisory fees were $ 407 million in the second quarter, little change from the previous year. This contrasts with the results of Goldman Sachs Group Inc., which saw an 83% increase in transaction costs, and JPMorgan Chase & Co., where such revenue increased by 52%.
Bank of America slipped 1.3% to $ 39.35 at 9:32 a.m. in New York. The Charlotte, North Carolina-based company is up 30% this year, compared to a 27% gain for the KBW Bank Index.
CFO Paul Donofrio said the second quarter marked “a turning point” for lending growth and the bank expects lending to continue to increase during the year. However, he did not reiterate Bank of America’s forecast, provided in April, that net interest income, by the end of the year, would be around $ 1 billion higher than the 10, $ 3 billion posted by the bank in the first quarter.
“This is the quarter where you saw proof that we were all looking for loans to start increasing,” Donofrio said on a conference call with reporters Wednesday.
Donofrio later added on the analyst call that meeting the previous NII target was “possible”, but that a recent significant cut in long-term interest rates “presents a challenge” to meeting that target. .
Bank of America continued to release the reserves it had built up earlier in the pandemic, anticipating a wave of loan losses that never materialized. The lender released $ 2.2 billion in reserves in the second quarter, after releasing $ 2.7 billion in the first quarter.
Donofrio said the bank’s credit losses are at their lowest in 25 years and that he expects reserve levels to continue to decline, but likely not at the pace of previous quarters.
Also in the second quarter results:
Non-interest spending rose 12% to $ 15 billion. Net income more than doubled to $ 9.2 billion, or $ 1.03 per share. Analysts have estimated 77 cents on average. Total revenue fell to $ 21.5 billion.
(Updates with CEO comments starting in fifth paragraph.)
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