Bank of America profits cut nearly in half as it sets $3.6 billion aside over COVID-19

Bank of America’s pre-tax income fell by about half in the first quarter as the bank set aside billions in reserve to prepare for coming defaults caused by the economic consequence of the new coronavirus pandemic.

The bank joined all of its peer banks in setting aside billions to gird for the impact that mass unemployment and a worldwide economic slowdown will have the global economy, setting aside $3.6 billion, it said Wednesday. Wells Fargo set aside $3.1 billion for the same purpose Tuesday.

Bank of America’s net income for the quarter fell to $4 billion, from $7.3 billion in the same quarter last year. Excluding the reserve it set aside, pre-tax income fell 5%. Shares fell about 5% as of mid-day Wednesday trading.

The struggles of many small businesses and individuals shone through in the earnings.

The bank deferred nearly a million payments through April 8, four out of five of which were credit card payments. About a third of the bank’s small business loan portfolio are in accounts that have requested payment deferrals.

Growing in a crisis

“We remain a source of strength,” CEO Brian Moynihan said in a statement. “Our customers trusted us with $149 billion in additional deposits since year-end, which enabled us to provide liquidity to people, small business owners and corporate clients.”

Bank assets rose, as consumers moved their holdings into cash and companies drew down more of their loans. Total assets at the ended of the quarter were higher, at $2.62 trillion, up from $2.43 trillion at the end of last year.

After Bank of America limped through the financial crisis and its wake, Moynihan aggressively sought to avoid a repeat of 2008 when he took the top job in 2010. The bank has reduced its risk, some on its own volition, some because of new financial regulation, and enters the current economic crisis in a far stronger position than it came into the last one.

“We’ve run this company over the past 10 years so we could be part of the solution in a crisis like this,” said Paul Donofrio, the bank’s chief financial officer, on a call with reporters. He pointed to the psychology that may have underpinned the flow of billions in deposits into the bank the last quarter.

“Customers were drawn to the safety and soundness of Bank of America,” he said.

The bank’s digital products, a huge investment in recent years, saw massive growth as consumers and businesses avoided going into branches during the pandemic. Active mobile banking users rose 10% to 29.8 million, while Merrill Lynch saw a 40% jump for the wealth management brand’s mobile app.

Zelle, the digital payments platform owned by a consortium of banks including Bank of America, saw volume rise 73% during the quarter to $27 billion, the bank disclosed. The app now has 10.4 million users.

No layoffs

The Charlotte-based bank, which employs 16,000 in the city, has already said it won’t lay people off during the pandemic.

It has shifted over 150,000 workers to work-from-home during the pandemic, including many call center workers, who are not traditionally able to work remotely. The bank has distributed 90,000 laptops to employees, it said.

Bank of America has kept all of its 4,300 branches open with limited hours so far, unlike other banks which have selectively closed some locations. Bank of America also plans to donate $100 million to help communities recover from the effects of the virus.

While some critics have called for big banks to stop paying out their dividend to shareholders and instead use the capital to lend, bank executives said Wednesday that they planned to keep the money flowing to shareholders. Wells Fargo also said yesterday it would continue its dividend.

Both banks said last month that they didn’t plan to buy back shares, as part of an industry agreement from major banks.

On Tuesday, Wells Fargo, facing challenging regulatory restrictions, reported a penny of profit per share. Truist, the other major bank headquartered in Charlotte, reports earnings Monday.

This story was originally published April 15, 2020 at 7:12 AM with the headline "Bank of America profits cut nearly in half as it sets $3.6 billion aside over COVID-19."