Bank of America Wants to Be the Good Guy in This Crisis

(Bloomberg Opinion) -- Big banks are the good guys now.

That, in a nutshell, was the message that Bank of America Corp. sought to convey to Wall Street and Main Street on Wednesday in its first-quarter earnings. It added 2,000 employees in March and pledged no job cuts this year related to the coronavirus pandemic, even after it increased its minimum hourly rate of pay in the U.S. to $20, as Chief Executive Officer Brian Moynihan had previously announced. About 16% of small-business accounts deferred payments on their loans and credit lines, representing almost one-third of the bank’s small-business balances. Individuals and families can request to defer payments on credit cards, auto loans and mortgages, all without any negative credit-bureau reporting for those who were previously up-to-date.

“Just as important as our financial results this quarter is what we’re doing to take care of our teammates and to help clients and communities impacted by the virus,” Moynihan said in a conference call with analysts. “We do this not only because it’s the right thing to do, but also in the end it will benefit you, the shareholder.”

Through these measures, Bank of America is living up to its name. This is a time of sudden struggle for many Americans, particularly small-business owners who had done nothing wrong financially but still find themselves without any source of revenue. It’s precisely the moment that banks should help their clients get to the other side of the crisis. Moynihan’s comments echoed JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who said on Tuesday: “If we can help the country get through this, everybody’s better off. If we lose a little more money in the meantime, then so be it.”

It’s not purely altruistic, of course — the big banks were the undisputed villains of the last recession. They’re determined not to draw widespread condemnation this time around.

Naturally, it helps that Wall Street isn’t drowning in toxic mortgage debt. Rather, Bank of America Chief Financial Officer Paul Donofrio said the bank has more than tripled its liquidity since the 2008 financial crisis, from $214 billion to about $700 billion. “Ten years ago, we set out to transform our business and operate under the principles of responsible growth so we would be a source of strength in the next crisis,” he said.

That strength is already being put to the test: The bank has received about 1 million requests from borrowers to postpone their loan payments, though the volume has fallen since peaking a couple weeks ago. Like JPMorgan and Wells Fargo & Co. before it, Bank of America ramped up the amount it set aside for loan losses, allocating $4.76 billion, the most since 2010 and up from $1 billion a year ago. These figures seem large by comparison to recent history, so it’s tempting to view them as conservative estimates, but given the lack of precedent for a nationwide voluntary shutdown it’s really anyone’s guess whether banks are overshooting or not. 

One thing is clear: The price of being the good guy and doing right by your staff and consumers can add up. Bank of America’s profit plunged 45% in the first quarter even though its trading revenue jumped 22% year-over-year. The all-important net interest income dipped 2% from last year and may drop further in the current quarter with interest rates near record lows. Bloomberg Intelligence’s Alison Williams noted in January that “one thing we’ve seen from Bank of America is best-in-class cost ratio.” Just how long are Bank of America and its peers willing to let costs climb?

Bank of America’s shares tumbled 6.6% after the stock market opened on Wednesday, a steeper decline than the rest of its peers and more than the 2% drop for the S&P 500 Index. 

At the same time, the battle for incremental market share across banking divisions doesn’t pause during a recession, so slashing costs might not be the best business decision. It’s notable that even Citigroup Inc.’s headcount grew by 1,000 in the first quarter, in stark contrast to the roughly 174,000 positions it has trimmed since 2007. Its net income tumbled 46% as it set aside $7.03 billion to cover potential loan losses, which was too much for a 39% increase in trading revenue to overcome.

Moynihan repeatedly referred to being “in a war” against the coronavirus when discussing the first-quarter earnings. Certainly, there have been casualties across Bank of America’s businesses. It’ll be worth it if the company comes out of this crisis looking like a hero.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.

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