Tuesday 27 September 2016

Bank of America profits slide 18pc as bad oil loans pile up

Richa Naidu and Nikhil Subba

Published 15/04/2016 | 02:30

Bank of America Corp, the second biggest US bank by assets, reported an 18pc slide in quarterly profit yesterday as its trading business was hit by concerns about a global economic slowdown and uncertainty about US interest rates.

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BofA, one of the biggest US lenders to the oil and gas industry, also said that it had set aside 30pc more money to cover sour loans, mainly to the struggling energy industry. The profit was in line with the market's low expectations after what was widely seen as the grimmest first quarter for the banking industry since the financial crisis.

Revenue in five of BofA's six main businesses fell, pulling down total revenue below Wall Street's expectations. Only consumer banking grew.

Market volatility stemming from a slide in commodity and oil prices, worries about China's economy and uncertainty about interest rates hit trading activity globally in the quarter, particularly in January and February.

Adjusted revenue from bond, currency and commodities trading slumped 17.5pc to $2.26bn.

BofA's shares, which fell 20pc in the quarter, were down 1pc in premarket trading after rising 3.9pc on Wednesday following better-than-expected earnings from bigger rival JPMorgan Chase & Co, the biggest US bank.

JPMorgan, whose results had helped to allay some concerns about the quarter for US banks, reported a 13.4pc decline in bond trading revenue.

Market activity so far in April, as in March, has been stronger than the first two months of the year "so, we are optimistic", Bank of America's chief financial officer, Paul Donofrio, said on a call with reporters.

BofA, which is headquartered in Charlotte, North Carolina, said its total provisions jumped to $997m in the quarter ended March 31.

A report by Barclays estimated that 2.3pc of BofA's total loans were energy-related at the end of December. "The bank feels very good about its energy reserves," Donofrio said.

About a third of publicly traded oil and gas-related companies, with more than $150bn in debt, are at high risk of bankruptcy this year, according to a report by auditing and consulting firm Deloitte.

This week alone, Peabody Energy, the biggest US coal miner, and Energy XXI, a significant oil and gas producer in Louisiana, Texas and the Gulf of Mexico, filed for bankruptcy protection. Overall credit quality remained strong, the bank said, while consumer portfolios continued to improve and commercial portfolios remained stable except in the energy sector.

BofA's net income attributable to common shareholders fell to $2.22bn, or 21 cents per share in the quarter.

Excluding items, the bank earned 20 cents per share, matching the average analyst estimate.

Mortgage banking revenue at Citi slumped 37.6pc to $433m. JPMorgan said its revenue from the business rose 7pc, while Wells Fargo reported a 3.3pc increase.

"Our key conclusion from the results is that (BofA) continues to make progress on its key priorities of growing core loans and reducing core expenses... despite the deterioration in energy lending," according to Guggenheim analyst Eric Wasserstrom.

Wells Fargo's profits fell 5.9pc in the first quarter. The United States' third-largest bank blamed the oil slump. (Reuters)

Irish Independent

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