On Tuesday, shares of Bank of America (BAC.N) dropped over 3% following a decline in first-quarter profits and an increase in provisions for potential loan losses, signaling financial strains among consumers.
This setback reflects growing concerns among U.S. lenders about the financial health of the lowest-income consumers, despite overall robust spending and resilient household finances.
David Wagner, a portfolio manager at Aptus Capital Advisors, noted the market’s reaction, stating, “The market has used Bank of America as the bellwether for consumer commentary.
“The weakness in credit card delinquencies caught them offside.”
In response to these challenges, Bank of America reported a significant rise in net charge-offs, reaching $1.5 billion in the first quarter, up from $807 million the previous year, primarily due to credit card losses.
Alastair Borthwick, the bank’s chief financial officer, indicated that these charge-offs are beginning to stabilize.
The broader economic outlook remains uncertain, with Michael Ashley Schulman, chief investment officer at Running Point, pointing out, “The main economic hangover for Bank of America as well as most other banks is that Federal Reserve interest rates may not decline as quickly as previously expected.”
He added that this might lead to increased delinquencies and defaults, particularly in real estate sectors.
Despite the day’s losses, Bank of America’s shares have risen about 3% this year, though this lags behind the S&P 500 bank index’s 4.7% increase and a 6% gain for JPMorgan.
Bank of America’s net interest income (NII) fell 3% to $14 billion, impacted by higher payouts to depositors and modest borrowing demand.
Nonetheless, Borthwick remains optimistic, telling analysts, “We continue to expect that Q2 will be the low point for NII and we expect the back half of 2024 to grow.”
Amidst these financial maneuvers, Bank of America has reduced its workforce by more than 4,700 employees since the first quarter of 2023.
Meanwhile, excluding one-off items, the bank earned 83 cents a share in the first quarter, surpassing the average analyst estimate of 76 cents, according to LSEG data.
The bank’s resilience is further evident in its investment banking and wealth management sectors. Investment banking fees surged 35% to $1.6 billion, while revenue from sales and trading rose 2% to $5.2 billion.
Merrill, its wealth management division, saw profits increase by about 10% to $1 billion, with assets under management growing to $1.4 trillion.
Bank of America also bolstered its provisions for credit losses to $1.3 billion, up from $931 million a year earlier, reflecting increased writedowns on office loans and a $700 million charge to replenish a government deposit insurance fund after the collapse of two banks in 2023.
Despite these challenges, the bank maintains a cautiously optimistic outlook, driven by a recovering deal-making environment and controlled inflation.