BofA grapples with low income from loans as consumers avoid debt

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(Bloomberg) – Bank of America Corp. struggled to recover its credit income in the second quarter as consumers receiving cash from government stimulus programs shunned new borrowing. The stock fell the most in eight months.

Loans and leases in the consumer banking division fell 12% from a year earlier. The bank said Wednesday that net interest income, calculated on a fully taxable equivalent basis, was $ 10.3 billion in the last quarter. That figure – revenue from payments on customer loans minus what the company pays to depositors – was less than $ 10.5 billion predicted by analysts.

While government aid programs during the pandemic helped major lenders like Bank of America avoid widespread defaults, they also meant that many consumers and businesses did not need to take out new loans or open lines of credit. This trend, along with extremely low interest rates designed to stimulate the economy, has put pressure on the profitability of the banks’ main lending business. While Bank of America’s loan balances remained lower than a year earlier, they rose from the first quarter – the first sequential increase in a year.

“Net interest income and net interest margin look insignificant,” said Alison Williams, an analyst at Bloomberg Intelligence. “The improvement is probably not as big as some are hoping.”

Bank of America fell 5% Wednesday morning in New York, its largest intraday decline since early November. The Charlotte, North Carolina-based company is up 25% this year, in line with the KBW Bank Index.

Chief Executive Officer Brian Moynihan said Bank of America is seeing a resurgence in organic growth as vaccination campaigns move forward and the economy recovers.

“Companies need to build inventory and hire workers to meet growing consumer demand,” he said during a conference call with analysts. “This effective circle of hiring workers and meeting customer costs will help stimulate the economy and hopefully lead to more line utilization.”

Banks’ operations on Wall Street helped to overcome the downturn as turbulent markets boosted trading volumes. Meanwhile, companies looking to accumulate cash turned to debt and equity financing, and the combination of cheap financing for buyers and attractive pricing for sellers sparked 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 for the second quarter were $ 407 million, little change from last year. This contrasts with the results of Goldman Sachs Group Inc., where transaction fees rose 83%, and JPMorgan Chase & Co., where transaction fees rose 52%.

CFO Paul Donofrio said the second quarter was a “turning point” for credit growth and that the bank expects credit to continue to grow throughout the year. However, he did not repeat Bank of America’s forecast in April that net interest income by the end of the year would be about $ 1 billion higher than the $ 10.3 billion the bank announced in the first quarter.

“This was the quarter where you saw evidence that we are all looking, that loans will start to rise,” Donofrio said during a conference call with reporters on Wednesday.

Later in a conversation with analysts, Donofrio added that reaching the previous NII target is “possible”, but the recent significant cut in long-term interest rates “presents a problem” to achieve this goal.

Bank of America continued to release reserves it created earlier during the pandemic, anticipating a wave of loan losses that never materialized. The lender issued reserves of $ 2.2 billion in the second quarter, following a $ 2.7 billion disbursement 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, albeit probably not at the same pace as in previous quarters.

Also in the second quarter results:

Non-interest expenses rose 12% to $ 15 billion. Net income more than doubled to $ 9.2 billion, or $ 1.03 per share. Analysts estimated an average of 77 cents, and total revenue fell to $ 21.5 billion.

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