Bank of America posts $4.9 billion profit, as economic recovery heats up
Bank of America’s net income rose to $4.9 billion in the third quarter, up almost 50% from the prior quarter, according to the bank’s earnings released Wednesday morning.
The measure was down, though, from the same quarter in the year prior, when it made $5.8 billion. The bank’s shares fell 5.3%.
The Charlotte-based bank was boosted by a significant recovery in its consumer banking business. That section of the bank posted a $2.1 billion profit in the quarter, up from $71 million in the second quarter, mostly because it set aside substantially less to prepare for worsening defaults from its customers as a result of the ongoing coronavirus pandemic.
The bank as a whole put aside an additional $1.4 billion to prepare for coming losses on loans it has made, most of which came from the business lending wing of the firm. The bank has now set aside over $8 billion this year to gird for defaults from its customers.
“The past nine months have tested us and I’m proud to say that our teammates have responded extraordinarily well,” Chief Financial Officer Paul Donofrio said in a statement. “We have earned twice our dividend in every quarter since the crisis began.”
Profit in the bank’s markets operation, though, slid by more than half, to $857 million in the quarter from $1.9 billion in the second quarter as spending rose in the division by about $400 million.
So far, much of the forecast economic pain from the coronavirus pandemic has been deferred, with most vulnerable mortgages in forbearance and many struggling companies able to tap debt markets to spread costs out over time.
CEO Brian Moynihan said on a call with Wall Street analysts that the third quarter saw the spending habits of the bank’s customers return to pre-pandemic levels in the third quarter.
Returning reserves
If the economic recovery is better than the bank anticipates, then the reserves it put away won’t need to actually count as a loss. In an unusual step, as many see lingering economic uncertainty, the bank actually returned $179 million of the reserves it set aside earlier in the crisis.
The release, which came from the reserves the bank has on credit cards, was due to an improving economic outlook and because for some card balances that may have been potentially troubled, “those people have basically paid us,” Moynihan said on a call with reporters Wednesday morning.
The bank, which employs 16,000 in Charlotte, has said it won’t lay people off this year due to the pandemic. Still, attrition led the total headcount at the bank to drop by 3,000 in the quarter, Moynihan said.
Crosstown peer Wells Fargo, which is in a much more difficult financial position, has pledged $10 billion in cost cuts, which will mostly consist of layoffs. The San Francisco-based bank, which employs 27,000 people in Charlotte, reports its third-quarter earnings later Wednesday morning.
This story was originally published October 14, 2020 at 7:15 AM.