Bank of America said in an earnings report Wednesday that it suffered a 45 percent decline in profits in the first quarter of the year, as the COVID-19 outbreak exploded in full force in the United States.
The bank posted a first-quarter profit of $4.01 billion on revenues of $22.8 billion, the company said in a statement (pdf), adding that it had set aside $3.6 billion in reserves in anticipation of a flood of loan defaults due to the pandemic.
The outbreak of the Chinese Communist Party (CCP) virus, commonly known as the novel coronavirus, has led other Wall Street banks to beef up their loan-loss reserves as a buffer against an expected surge in loan defaults.
The virus has sparked the worst recession since the Great Depression, according to the International Monetary Fund.
In a conference call with analysts, cited by CNBC, Bank of America Chief Financial Officer Paul Donofrio said he expected losses to increase this year and, possibly, into 2021.
Rate cuts by the Federal Reserve in response to the severity of the CCP virus outbreak are another factor likely to exert downward pressure on profits as low interest rates make it harder for banks to make money.
Still, despite expectations of mounting losses, Bank of America added 2,000 new employees in March, promised no job cuts this year due to the outbreak, and said it would let customers defer some payments, including on credit cards, car loans, and mortgages.
“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,” said Bank of America Chief Executive Officer Brian Moynihan in the report.
In this respect, Moynihan’s comments echo those made on Tuesday by JPMorgan Chief Executive Officer Jamie Dimon, who was cited by Bloomberg as saying: “If we can help the country get through this, everybody’s better off. If we lose a little more money in the meantime, then so be it.”
JPMorgan on Tuesday posted a drop in first-quarter profit and set aside a whopping $6.8 billion in reserves as a buffer against loan defaults, according to a quarterly earnings statement (pdf).
Similarly, Wells Fargo set aside billions in loan-loss provisions and saw its first-quarter net income take a severe hit from the pandemic. After provisioning for bad loans, the bank reported (pdf) profits of $653 million for the first quarter, down from $5.9 billion in the year-ago quarter, which is around a 90 percent drop.
Citigroup on Wednesday posted a 46 percent first-quarter drop in profits and announced provisions of nearly $5 billion in anticipation of a deluge of loan defaults.
In an earnings call with reporters on Tuesday, as cited by The New York Post, Moynihan said the bank was well-poised to withstand the economic impact of the pandemic, but stopped short of predicting when things would improve.
“At the end of the day, the banking system is going to reflect the global economy,” he said, according to the report.
Robert Johnson, Professor of Finance at Heider College of Business at Creighton University, told The Epoch Times, “the good news is that entering the coronavirus pandemic, bank balance sheets were extremely strong. The bad news is that those balance sheets are going to be under immense pressure over the coming months and that is clear from the loan loss provisions being reported in bank earnings. The pundits expecting a quick, ‘V-shaped’ economic recovery may well be disappointed.”