Bank shares came off the US holiday nursing the wounds from a steep, late-week selloff following results from JPMorgan, Citi, and the lowly Wells Fargo, but still riding an impressive overall rally amid the pro-cyclical rotation in markets and accompanying move higher in US yields. Despite Friday’s selloff, the banks index was still up more than 9% in January.
It’s against that backdrop that Bank of America reported what looked to be mixed results Tuesday. Net income of $5.5 billion benefited from lower provision expenses. The reserve release was $828 million. EPS of $0.59 was a slight beat and the bank announced a $2.9 billion buyback program.
However, revenue fell 10% YoY to $20.1 billion. That looked like a miss. At $10.37 billion, net interest income was near the top end of the range, and up sequentially (but down on-year for obvious reasons). Margins were weaker than expected, while loans and leases fell $23 billion, or 2%, which the bank attributed to lower card balances and declines in commercial loans. At 1.71%, BofA’s net interest yield dropped a basis point and missed estimates of 1.74%.
On the markets front, BofA appeared to whiff on FICC. Revenue there (ex-DVA) was $1.74 billion. That was down more than 5% and below the $2 billion consensus expected. In equities, on the other hand, revenue of $1.32 billion handily beat the $1.16 billion the street expected and was up 29% YoY.
All in all, markets revenue of $3.06 billion was slightly below consensus.
In Consumer, net income dropped to $2.6 billion. The bank cited lower rates, lower fees, and higher operating costs (that’s not a great mix), with the latter attributable to steps the bank took “to protect the health and safety of employees and clients.” That’s what happens when you operate a sprawling network of in-person branches during a massive public health crisis. The bank reported a $559 million reserve release in Consumer driven by Card. BofA thanked “the improved macroeconomic outlook.” I suppose that depends on one’s perspective.
Overall, total net charge-offs of $881 million reflected a $91 million drop from the third quarter, again driven by Card.
Brian Moynihan’s perfunctory remarks described the fourth quarter as a period during which the bank “continued to see signs of a recovery, led by increased consumer spending, stabilizing loan demand by our commercial customers, and strong markets and investing activity.”
Suffice to say any increase in consumer spending will likely be snuffed out in the absence of additional fiscal stimulus.
Commenting further, Moynihan said “the latest stimulus package, continued progress on vaccines, and our talented teammates position us well as the recovery continues.”
In the slide deck, there’s some commentary on cards that isn’t totally encouraging. “Beginning in August, we saw modest delinquency increases as deferrals expired,” the bank remarked, adding that in the fourth quarter, “early stage delinquencies recede[d] below pre-pandemic levels as expired deferrals progressed to 90+ days past due.” The bank went on to say that “the increase in later stage delinquencies is expected to lead to modestly higher card net charge-offs in Q1 2021,” although that’s expected to recede anew starting in the second quarter.
It wasn’t immediately clear why anyone should be particularly “thrilled” with these results, but then again, I can’t remember a quarter when BofA results could be described using any synonym for “exciting.” Moynihan would doubtlessly disagree.