Bank of America, the second largest US bank by assets, has reported first quarter profits of $8 billion, more than doubling its profits from the same period last year.
Whilst the bank’s total revenue remained fairly stagnant when compared against last year’s corresponding quarter, the profits have beaten analysts’ expectations.
With the economic outlook easing as vaccination programs start to take effect, and the US Governments massive stimulus package kicks in, the bank also released $2.7 billion of reserves it had placed aside for potential loan losses.
These reserves get released back into the bank’s income statement, meaning they are listed as earnings.
In a statement released to accompany the announcement, the bank’s Chief Executive Officer, Bryan Moynihan said that – “While low interest rates continued to challenge revenue, credit costs improved, and we believe that progress in the health crisis and the economy point to an accelerating recovery.”
The bank said it expects U.S. Gross Domestic Product to return to pre-pandemic levels by the third quarter of this year. Late last year and into this year it had been forecast that GDP wasn’t expected to get back to these levels before 2022 and possibly beyond. It is these figures that banks use when assessing how much they put aside for bad loans.
The bank has also approved a $25 billion share buyback plan.
How did the bank perform?
Loan growth in the quarter struggled, mainly down to lower commercial loan balances. When compared to the same time last year, average loan balances dropped by $82 billion, from $990 billion to $908 billion.
Net interest income was also down. The net interest margin (the difference between what the bank makes from interest bearing assets and what it pays out in interest bearing liabilities) was down slightly when compared against the corresponding quarter.
Mirroring a pattern seen by other banks, consumer spending is on the rise. The bank reported that debit and credit card spending by consumers is up by 13% year on year. This is not surprising with last year being one of huge financial instability. This is noted by the bank as another positive sign that the economy is bouncing back.
Another excellent performer was the bank’s global banking division. The division, which also incorporates the bank’s investment banking arm, made a profit of $2.2 billion. For the corresponding quarter of last year, it was $200 million. This was largely driven by strong advisory fees and on record equity underwriting fees.
Finally, the bank’s global wealth and investment group also reported excellent figures for the quarter. The report showed strong growth in its managed assets and record client balances.