Coronavirus Makes Its Mark On Bank Of America As Loss Provisions, Revolver Draws Surge

Bank of America followed JPMorgan in reporting a huge provision for credit losses as the country’s most important financial institutions rush to quantify the likely domino effect of a near-total economic shutdown to arrest the spread of the coronavirus.

The reserve build for Q1 was $3.6 billion at Bank of America. The total credit loss provision rose to $4.8 billion.

“Despite increasing our loan loss reserves, we earned $4 billion this quarter, maintained a significant buffer against our most stringent capital requirement, and ended the quarter with more liquidity than when we began”, Brian Moynihan said.

EPS for the quarter was $0.40. As you can see, revenue fell 1% YoY to $22.8 billion. Pre-tax income ($4.5 billion) was down 48%. Excluding the provision, income was down 5%.

Obviously, the provision for credit losses dwarfs that seen in recent quarters. Total net charge-offs rose $163 million to $1.1 billion driven by an increase in commercial losses. Commercial net charge-offs rose 10bps from Q4, while they were essentially flat in consumer – for now. The yellow line in the visual is total.

Nonperforming loans rose $500 million from Q4, again driven by an increase in commercial loans.

The bank notes that Q1 total payments rose 9% YoY, but flags a “softening in credit and debit spend that began mid-February and accelerated in late March as stay-at-home orders affected a majority of Americans”.

“Card spend for non-essentials declined, even for those not impacted by the pandemic from a cash flow or employment perspective, and purchases of essentials such as groceries increased”, the bank goes on to say.

The bank also saw “record breaking customer loan and deposit activity”. Commercial loans, for example, rose $67 billion over the fourth quarter, driven “primarily by commitment funding activity”. It’s not hard to identify the two-week period when strict COVID-19 containment measures went into effect:

90% of commercial loan growth was related to revolver draws on existing lines, the bank says. They’re quick to note that 90% of the increase was also investment grade or collateralized.

Net interest income fell 2% YoY due to lower rates. It was stable from the fourth quarter.

As noted Tuesday, trading is a sideshow for banks this quarter, taking a backseat to credit trends, but Bank of America’s trading revenue did beat estimates for Q1, coming in at $4.34 billion (ex-DVA), up 22% YoY, and well ahead of the $3.89 billion the market was looking for.

In FICC, revenue was $2.67 billion, up 13% and ahead of estimates ($2.52 billion). The bank cites higher client activity and “improved market making conditions across all macro products (in particular Rates) which more than offset weaker performances in the credit-sensitive businesses”. Equities trading beat too, at $1.7 billion, up 39% thanks to increased client activity and “strong trading performance in the more volatile market environment”.

Needless to say, Bank of America spends quite a bit of time patting itself on the back for everything the bank has done to assist customers during these trying financial times. Here’s a helpful slide in that regard:

Note that through April 8, the bank had received 279,000 applications totaling $43 billion for the Paycheck Protection Program. Do the math on that versus the total amount of committed loans under PPP and you get an idea of how crucial Bank of America is in the effort.

Brian Moynihan offered the following and he’s sure to have much more to say on the call about the role the bank is playing in supporting the economy and also on what he expects to see during what’s likely to be the most arduous quarter in history in Q2.

“Our results reflect the strength of our balance sheet, the diversity of our earnings, and the resilience of our teammates to serve clients around the world. Despite increasing our loan loss reserves, we earned $4 billion this quarter, maintained a significant buffer against our most stringent capital requirement, and ended the quarter with more liquidity than when we began. “We remain a source of strength – our customers trusted us with $149 billion in additional deposits since year-end, which enabled us to provide liquidity to people, small business owners and corporate clients. We received nearly a million requests for assistance and we announced a $100 million commitment to provide critical support to local communities. We are taking extraordinary steps to support our employees, clients and communities during this humanitarian crisis.”