Bank of America likes what it sees in consumer spending

Bank of America in Charlotte, N.C., is counting on a rebound in consumer spending to get revenue back on track.

Executives at the $2.8 trillion-asset company expressed confidence Tuesday that net interest income had turned a corner, setting the stage for stronger earnings over the next few quarters.

With many businesses still struggling with the coronavirus pandemic, and after all big banks reported flat to down revenue in the fourth quarter, Brian Moynihan, Bank of America’s chairman, president and CEO, said most of his optimism hinges on the company’s retail banking operations.

“Consumer payment activity began and ended the year very strong,” while pressure from low interest rates “likely bottomed” in the fourth quarter, Moynihan said during a conference call to discuss quarterly earnings.

Payments activity, which plunged in the earliest days of the pandemic, “snapped back” to finish the fourth quarter slightly ahead of where it was three months earlier, including a “record volume of holiday spending,” Moynihan added.

Other factors will likely push revenue and profit up in 2021, with most tied to consumer activity.

BofA pointed to improved digital payments activity, which boosted fee income, and lower loan-loss provisions. Americans ramped up debit card use as they adapted to the pandemic, and government stimulus programs helped prop up the job market, Moynihan said.

The recent recovery in bank stocks suggests that investors think the positive tone from companies such as Bank of America is justified, even if the overall economic data says otherwise, said Mike Matousek, a trader at U.S. Global Investors.

“I’m not sure we’re seeing it quite yet in the actual economy, but there’s a lot of expectation for a pretty strong recovery looking into this year,” Matousek said.

BofA’s revenue fell by 10% from a year earlier and 1% from the third quarter, to $20.1 billion. Net interest income decreased by 16% from a year earlier, but inched up by $124 million from the third quarter, to $10.3 billion.

But revenue in BofA’s consumer unit climbed by 2.5% from a quarter earlier, to $8.2 billion.

Though many businesses still face challenges, BofA said it is seeing positive developments with some commercial clients.

“Our companies are highly liquid and generally in pretty good shape, except of course for those industries that are most hard-hit by COVID,” Moynihan said.

“As the economy continues to push ahead, these companies … will need operating capital,” he added. “We saw early signs of loan demand stabilizing as we went through the fourth quarter.”

But Moynihan cautioned that “it’s a four- or five-quarter fight” to narrow the gap between overall loan and deposit balances. The company’s loan-to-deposit ratio was 51.7% on Dec. 31, a notable change from 68.5% a year earlier.

Overall, BofA reported that its fourth-quarter profit fell by 22% from a year earlier, but it rose by 12% from the third quarter, to about $5.5 billion. Earnings per share of 59 cents surpassed the average estimate of analysts polled by FactSet Research Systems by 4 cents.

BofA’s results, like those of JPMorgan Chase and Citigroup, benefited from an improved credit outlook. The company released more than $800 million of its loan-loss reserves in the fourth quarter, with three-fourths of the amount tied to consumer loans.

Net charge-offs fell by 9% from a quarter earlier to $881 million, including a 15% decline in its consumer unit, to $482 million.

Accelerated vaccination efforts would provide lenders with more clarity when it comes to loan exposure.

“You’ll see the uncertainty come down pretty quickly on the other side of that,” Moynihan said.

Results from the biggest banks, while far from strong, are showing investors that credit quality is holding up despite the ongoing pandemic, industry observers said.

“There is still real uncertainty about how quickly we can all get vaccinated and return to what we all know as normal,” said Michael Jamesson, a principal at bank consultant Jamesson Associates. “But if the vaccines get out, by mid-summer, the economy could really look quite good.”


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