Bank Of America Slashes Reserve, But Misses On Multiple Fronts

Bank Of America Slashes Reserve, But Misses On Multiple Fronts

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
Subscribe or log in to read the rest of this content.

3 thoughts on “Bank Of America Slashes Reserve, But Misses On Multiple Fronts

  1. I keep hearing how inflation and/or higher interest rates are so wonderful for banks. All well and good if there is demand for the loans which would sport higher spreads. Too bad non-bank lenders are relentlessly taking share, no doubt picking off the better risks.

    But the Covid pandemic may have set something even more damaging into motion. For years banks have been cutting branches willy-nilly in order to reduce costs. The first step was to encourage the use of ATMs rather than tellers. More recently they were pushing their customers to use online offerings rather than going to a physical branch. All good MBA/consultant stuff.

    There was a stubborn reluctance by many to doing everything online, though that was gradually eroding. Covid-related branch closures forced more customers onto the online platforms and many formerly-reluctant customers were won over. Wonderful! They can close more branches!

    But isn’t there a fly in the ointment? Once more people are comfortable with doing everything on line, what’s to stop them from starting to shop around more for better (higher) interest rates on deposits or lower rates on loans?

    That would trigger a race to the bottom as more and more clients opt to comparison shop, just as they’ve learned to do when buying a car. In the past, there was often some loyalty and good will generated by the staff in your local branch. Now that your nearby branch has been closed, why should you stay with them if another bank (or non-bank) offers better terms?

    Competing solely based on price is not necessarily a good environment for generating profits. NOt that earnings matter in a theme-driven market.

    1. GPWM. Though, in Europe, lots of people remain very conservative when it comes to banking… And the failure of the bancassurance model (whereby banks would offer off-the-shelf standard insurance products) spoke to the strength of such conservatism.

      It’ll be interesting to see how things evolve, though I note that the US, with its myriad of local banks, is a very different environment to Europe.

  2. I recall that in the darkest days of covid in 2020, the bank CEO’s established massive reserves – couching such reserves as ‘possibly not even big enough’!….even though the banks knew and continue to know that the “King”, aka The Federal Reserve Bank of the United States of America, would never, ever allow a failure or even anything that could come close to causing panic about a possible failure.
    Now, going into 2021- the banks have 2 ways to “manage” earnings- release of previously established reserves (creating income out of thin air) and buybacks. On top of the “backstop” of the Fed.
    I am just annoyed (at myself) for not pulling the trigger even just a few weeks ago on BAC when it was under $30.

Leave a Reply to Emptynester Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.