BofA predicts consumer spending will drive loan growth in the second half

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Although ultra-low interest rates drove Bank of America revenue in the second quarter, the company expects interest income to rise along with consumer spending in the second half of the year.

Chairman and CEO Brian Moynihan said Wednesday that consumer spending increased in the spring and early summer, along with successful virus vaccination efforts. BofA’s total consumer and small business payments reached $ 976 billion in the second quarter, up 41% from a year earlier and 23% more than in the same quarter of 2019.

“Consumer spending has significantly exceeded pre-pandemic levels,” Monihan said during a call with analysts after BofA released its second quarter results, “and lending began to rise.”

Bank of America predicts an increase in both consumer and business lending, which will result in higher interest income in the third and fourth quarters on both a quarterly and an annual basis.

The upbeat outlook for lending growth contrasted with remarks Tuesday by JPMorgan Chase executiveswho said American consumers are unlikely to take advantage of significant amounts of leverage this year.

At BofA, based in Charlotte, North Carolina, outstanding loans and rentals were $ 919 billion at the end of the second quarter – still significantly lower than $ 999 billion a year earlier, but up 2% from the first quarter. This amount partially reflects the growth in credit card loans, which rose 4% QoQ to $ 75.6 billion.

“We’re seeing our organic growth engine start working again,” Moynihan said.

However, BofA’s second-quarter net interest income was unchanged from the prior quarter at $ 10.3 billion, down from $ 11 billion a year earlier on a fully taxable equivalent basis, reflecting unusually low interest rates.

Low rates narrow the difference between what Bank of America pays its depositors and what it charges borrowers – a predicament that has also plagued many competitors. BofA’s second-quarter net interest margin was 1.61%, down 26 basis points from a year earlier.

It’s downward pressure on margincut into income, which fell 4% from a year earlier to $ 21.5 billion.

But rising consumer spending and rising total lending suggest that Bank of America’s revenue “could soon start to grow,” said Moody’s Investors Service analyst David Fanger.

Bank of America’s customer spending was 22% higher in the first half of this year compared to the same period in 2019 – before the coronavirus pandemic and the economic malaise it causes. This data includes credit and debit card spending for both consumers and small business owners.

BofA economists estimate that gross domestic product grew by 10% in the second quarter.

Moynihan said he expects increased spending by clients and loans to pay for everything from cars and homes to small business expansion as the economy and supply chains normalize during the last half of this year and next. He named government stimulus payments, including direct checks to US households, as one of the accelerators.

Even at low rates, Moynihan said, the increase in lending should translate into higher interest income in the third and fourth quarters on both a quarterly and an annual basis. He expects an increase in demand for loans from both consumers and businesses.

“This quarter we saw that the level of loans in almost all areas of activity passed stabilization and began to make progress,” said Moynihan. “Companies need to build up inventories, hire workers to meet growing consumer demand.”

He argued that the combination of business hiring and higher customer spending would create a “favorable circle” that is likely to stimulate greater use of the line of credit by business owners.

Wells Fargo analyst Mike Mayo said BofA, like much of the banking industry, is in a “hiatus” between a period of credit improvement and a second phase of revenue growth, and that the last quarter has provided positive performance.

“Even if this time between acts may be slightly longer than expected,” Mayo said, revenue increases “depend on when, not if.”

Moynihan said he expects credit quality to remain strong as lending grows, given the improving economic picture. BofA’s net write-offs in the second quarter were down 28% from the first quarter and 48% from a year earlier to $ 595 million.

Bank of America posted second-quarter net income of $ 9.22 billion, or $ 1.03 per share. That was up from $ 3.53 billion, or 37 cents a share, a year earlier. Analysts polled by FactSet Research Systems had forecast second-quarter earnings of 77 cents per share.

The increase in profitability was largely driven by BofA’s decision to release provisions for loan losses of $ 2.2 billion, which fell to the company’s net income.

In 2020, the bank set aside billions of dollars to protect against a possible spike in bad loans that never materialized. Large banks such as Jp morgan chase as well as Citigroup also benefited from reserves in the second quarter.





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