Why Bank of America Shares Are Falling Today

What happened

Bank of America (NYSE: BAC) today posted better-than-expected second quarter earnings, but investors focused more on faltering loan growth. As a result, the stock traded up to 5% on Wednesday.

So what

Ahead of the opening of markets today, Bank of America reported second quarter earnings of $ 1.03 per share, beating consensus of $ 0.77, on revenue of $ 21.5 billion slightly below expectations of $ 21.83 billion.

The problem for Bank of America and other large financial institutions is that consumers and small businesses are no longer taking on new debt like they used to. Government programs designed to keep banks and businesses afloat during the pandemic have largely been successful in averting widespread defaults, but have left borrowers with little need to apply for new loans or operate credit lines. credit. And cash payments left consumers inundated with cash, leading to a 12% drop in consumer loans and leases from a year ago.

Falling interest rates are also wreaking havoc. Net interest income fell 6% to $ 10.2 billion. But average deposits in the quarter increased $ 231 billion to $ 1.9 trillion.

“Despite the persistent challenge of low interest rates, the diversity and leadership positions of our eight business segments have enabled us to benefit from a faster economic recovery this quarter,” said CFO Paul Donofrio in a statement. “At the same time, our balance sheet remains a source of solidity, as supported by our performance during the last stress tests, which showed a significant excess of capital.”

Bank of America deployed nearly $ 6 billion this quarter on dividends and share buybacks and said it expects that number to increase in the coming quarters.

Now what

Bank officials on the post-earnings conference call said they believe they are approaching a turning point in loan growth, and the company expects net interest income to rise over the course of the year. of the year. But with interest rates nearing lows, it is difficult for banks to reignite the profit machine, resulting in sluggish profits.

Shares of Bank of America have risen 60% in the past year, even with Wednesday’s declines. The company is moving in the right direction, but given the bleak lending figures, investors are choosing to take profits following the bank’s earnings report.