- The bank set aside more money to cover consumers’ delinquent loans
- Profits fell to $6.67 billion in the first quarter of this year, Bank of America said.
- Combined US household debt soars to $17.5 trillion by end of 2023
Bank of America reported an 18 percent drop in profits during the first quarter of this year as the company set aside more money to cover losses on consumers’ credit cards.
The bank said earnings fell to $6.67 billion, or 76 cents per share.
Its net charge-offs (or debts that are unlikely to be recovered) rose to $1.5 billion in the first quarter, mainly due to credit card losses. This is an increase from $807 million the previous year.
U.S. lenders have cited the resilience of household finances as evidence that the economy remains on solid footing, but cracks are beginning to appear among lower-income Americans. Reuters reported.
While spending remains strong despite rising borrowing costs, banks are preparing for more customers to miss payments.
Bank of America reported an 18 percent drop in profits for the first quarter of this year
“The market has used Bank of America as a bellwether for consumer feedback,” David Wagner, portfolio manager at Aptus Capital Advisors, told Reuters.
“Weakness in credit card delinquencies took them offside.”
Alastair Borthwick, chief financial officer, said charge-offs are due to bad debts in the fourth quarter of 2023, but are starting to level off.
The combined debt of American households soared by $212 billion to a record $17.5 trillion in the final three months of last year, according to data from the Federal Bank of New York.
Amid rising debt, Americans’ delinquency rate also rose between October and December, and Americans had $1.13 trillion on their credit cards at the end of last year.
A combination of inflation, rising interest rates and the resumption of student loan payments in October has put pressure on household finances.
Interest rates remain at a 23-year high between 5.25 and 5.5 percent, and a higher-than-expected inflation report last week has dampened investors’ hopes for a rate cut in the next few months.
Speaking today in Washington DC, Federal Reserve Chair Jerome Powell said it will take “longer than expected” to reduce persistent inflation to the central bank’s 2 percent target, noting that it will also likely take longer to reduce rates. .
Combined U.S. household debt soared by $212 billion to a record $17.5 trillion in the fourth quarter of 2023.
Speaking today in Washington DC, Federal Reserve Chairman Jerome Powell said it will take “longer than expected” to reduce persistent inflation to the central bank’s 2 percent target.
Bank of America shares fell more than 3 percent on Tuesday.
The bank’s profit decline included a one-time charge of $700 million to pay the Federal Deposit Insurance Corporation for last year’s bank failures. Excluding that charge, the bank said it would have earned 83 cents per share.
Revenue fell 1.6 percent to $25.98 billion as net interest income declined from a year earlier, although it still beat estimates.
Bank of America shares fell more than 3 percent on Tuesday
Overall in consumer banking, revenue fell 5 percent to $10 billion in the quarter, primarily due to lower deposit balances.
Net interest income (NII), which is the difference between what it earns on loans and investments and what it pays customers for their deposits, was $14.19 billion.
According CNBCStreetAccount forecasts put the figure at $13.93 billion.
Meanwhile, the firm’s investment banking revenue rose 35 percent to $1.57 billion, beating expectations.