© Reuters. FILE PHOTO: A Bank of America logo is seen in New York City, U.S., January 10, 2017. REUTERS/Stephanie Keith/File Photo
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By Saeed Azhar and Mehnaz Yasmin
NEW YORK (Reuters) – Bank of America reported on Friday that its quarterly profit fell, hit by $3.7 billion in extraordinary charges that compounded the pain of earning less on interest payments and paying customers more to keep their deposits.
The bank's chief financial officer, however, expressed optimism about the U.S. economic outlook, citing consumer resilience.
“We feel pretty good about the economy,” Chief Financial Officer Alastair Borthwick said on a call with reporters.
“Consumers still have a lot of firepower” in a strong labor market, he said.
Shares of the second-largest U.S. lender fell 1.8% in early trading Friday after it posted net income of $3.1 billion, or 35 cents per share, for the three months ended March 31. December. That compares to $7.1 billion, or 85 cents. an action, a year earlier.
Excluding two charges related to replenishing a bank failure fund and how it indexed some operations, the bank reported a profit of 70 cents, slightly above LSEG estimates of 68 cents.
“Bank of America reported modest results in the fourth quarter, as the impact of interest rate headwinds was only partially offset by strong organic growth and good spending discipline,” said David Fanger, senior vice president at Moody's ( NYSE:) Investors Service.
Other analysts said Bank of America's net interest income underperformed that of rival JPMorgan, which posted a 19% rise to a record $24.2 billion.
“This was not a great quarter, especially compared to peers – JPMorgan really set the bar in net interest income,” said David Wagner, portfolio manager at Aptus Capital Advisors.
BofA's net interest income (NII) – the difference between what banks earn on loans and what they pay out to depositors – fell 5% to $13.9 billion after an unexpected year in 2023.
BofA expects NII to fall to a low in the first half of this year and grow in the second half, Chief Executive Brian Moynihan told investors last month, as lower rates reduce the interest income that banks banks get from loans.
Loans are expected to grow at a low- to mid-single-digit percentage rate in 2024, after expanding nearly 0.8% in the fourth quarter.
BofA managed to offset some declines with strong gains in commercial and investment banking.
Trading income rose 1% to $3.8 billion in the fourth quarter, driven by a 12% increase in equity income, while a rebound in trading in the fourth quarter lifted the company's commissions. investment banking up 7% to $1.1 billion.
BofA took a pretax charge of $2.1 billion in the fourth quarter to pay a “special assessment” fee to replenish a Federal Deposit Insurance Corporation (FDIC) fund that was drained by $16 billion to cover to the depositors of two banks that collapsed in 2023.
The bank also took a charge of about $1.6 billion in the fourth quarter as it phases out a Bloomberg interest rate benchmark used in some commercial loan contracts. That amount is expected to be recognized in its interest income through 2026, BofA said.
Bank of America also reported lower unrealized losses on securities held to maturity, helped by a rally in bond markets. The bank had unrealized losses of nearly $98 billion in the fourth quarter, down from paper losses of $131.6 billion in the third quarter.
Net charge-offs, or debts that are unlikely to be recovered, rose to $1.2 billion in the fourth quarter from $931 million in the third quarter, mostly from credit cards and office real estate.
