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By Imani Moise, David Henry and Noor Zainab Hussain
(Reuters) – Executives at Bank of America Corp said on Tuesday they were optimistic the bank could resume lending growth this year, after the coronavirus pandemic caused an annual contraction in its loan portfolio for the first time since 2014.
The total loans and leases of America’s second-largest bank fell 6% in 2020. The appetite for new loans declined during the pandemic as customers spent less and saved more and large corporations relied on capital markets to get funds rather than their bank.
But bank executives have said in calls they are starting to see signs of a rebound if the COVID-19 pandemic continues to subside.
“We are emerging from this health crisis,” CFO Paul Donofrio said on a conference call with reporters. “We should be able to develop NII because we are adding deposits and we are adding loans.”
The bank’s net interest income (NII), a key measure of how much it can earn on loans, fell 16% in the fourth quarter.
Lower rates meant to support the economy during the pandemic have limited the amount banks can charge for their lending services. As a result, Bank of America, Wells Fargo and Citigroup each saw double-digit overall revenue declines this month.
The NII increased slightly from a low point in the third quarter of 2020 and will continue to rise in 2021 with the biggest gains in the last half of the year, Donofrio said.
Megabank peers Wells Fargo and Citigroup said last week that the NII could drop 4% due to the lowest interest rates Fed officials have signaled will stay in place throughout of the year while JPMorgan forecast modest growth in 2021.
The strengthening of the bank’s optimistic outlook is a sign of improving the financial health of its customers.
Consumer and small business transaction volume at America’s second-largest bank managed to rise 2% in 2020 despite dropping 21% to an all-time high as coronavirus gripped the US economy in the spring .
Debit card spending jumped 12% in the quarter as customers who spent less amid the lockdowns reopened their wallets during the holidays, the bank said.
Underlining its confidence in the economy, the bank joined peers JPMorgan Chase & Co and Citigroup Inc to release $ 828 million from its reserves to cover bad debts after adding more than $ 8 billion in the first three quarters. of the year.
About 75% of the release of reserves is tied to the bank’s consumer portfolio, as customers entered the new year in better-than-expected financial health due to fiscal stimulus. The release of trade reserves was primarily driven by a decline in industries heavily affected by the pandemic.
Revenues from its sales and trading activities grew 7%, but underperformed peers as its fixed income trading desk missed estimates.
Net income applicable to common shareholders fell to $ 5.21 billion, or 59 cents per share, for the quarter ended Dec. 31, from $ 6.75 billion, or 74 cents per share, a year earlier.
Analysts on average expected earnings of 55 cents per share, according to Refinitiv’s IBES estimate, helped by lower costs of credit. Shares gained 1.2%.
Separately, America’s No. 2 bank said its board of directors approved a $ 3.2 billion share buyback program in the first quarter.
(Reporting by Noor Zainab Hussain in Bangalore and Imani Moise in New York; Editing by Anil D’Silva and Nick Zieminski)
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