BofA Shares Slide as Tepid Loan Growth Counters Trading Bonanza

(Bloomberg) -- Bank of America Corp.’s traders and investment bankers joined their Wall Street rivals in capitalizing on the stock market’s wild ride this year, but that wasn’t enough to satisfy investors also looking for more lending activity.

Shares fell as much as 4.2% Thursday -- their biggest intraday decline in five months -- after the company reported a decline in loan balances and its executives said higher costs from the pandemic would persist for longer than expected.

“Like all banks, BofA is waiting for loan growth, which was weak this quarter,” said Alison Williams, a Bloomberg Intelligence analyst. “Higher expenses are likely a disappointment.”

The company’s stock slid even after it reported a 17% surge in revenue from sales and trading in the first quarter, a bigger jump than expected, while equity underwriting fees more than tripled. The results echo blockbuster profits at JPMorgan Chase & Co. and Goldman Sachs Group Inc., which benefited from increased trading amid stock-market volatility and a flurry of activity by blank-check companies.

As the Covid-19 pandemic drags on, U.S. banking giants have remained resilient. Their Wall Street operations picked up the slack for other divisions, bringing in deal fees and activity from clients who were reacting to financial-market gyrations. Main Street units fared worse, as millions of Americans lost their jobs and businesses were shuttered. But there are some indications that consumers are starting to spend again as the vaccine rollout and stimulus efforts help the economic revival pick up steam.

“We see an accelerating recovery” that has “gained momentum and continues to be supported by fiscal monetary policies,” Chief Executive Officer Brian Moynihan told analysts on a conference call. “We remain highly focused on capturing loan growth as the economy expands and continues to recover.”

Bank of America’s fixed-income traders delivered a 22% climb in revenue, while its stock desks saw a 10% increase. The overall jump didn’t reach the blowout numbers that JPMorgan and Goldman Sachs announced Wednesday, but the bank’s total haul of $5.1 billion beat analysts’ $4.37 billion forecast.

Investment-banking fees climbed more than 60% to a record $2.25 billion, led by a surge in equity-underwriting fees to $900 million.

The bank’s net interest income, or revenue from customer loan payments minus what the company pays depositors, decreased 16% to $10.2 billion. Loans in the consumer banking unit dropped 8%.

“We believe 4Q 2021 NII could rise as much as $1 billion from this quarter’s level,” Chief Financial Officer Paul Donofrio told analysts.

Noninterest expenses rose 15% to $15.5 billion, driven by costs linked to the coronavirus, compensation changes and charges for shrinking the bank’s real estate footprint.

“Obviously we’re sitting here in the middle of a pandemic with a lot of Covid expenses that have been a little more sticky than we had all hoped, but they’re going to come out -- there’s no question about that,” said Donofrio, who fielded several analyst questions about costs during the earnings call.

The bank joined rivals in releasing reserves as the worst-case pandemic scenarios didn’t play out. It released $2.7 billion from its stockpile last quarter after stashing away more than $11 billion last year to cover loans likely to sour. Reserves will probably decline in coming quarters as the economy gets back on track and uncertainty eases, Donofrio told reporters on an earlier conference call.

Client balances in the Merrill Lynch Wealth Management business surged 32% to a record $2.9 trillion, while assets under management jumped 36% to $1.1 trillion.

Also in the first-quarter results:

• Net income rose to $8.05 billion from $4.01 billion a year earlier. It exceeded the $6.25 billion estimate of 13 analysts. Per-share earnings of 86 cents beat analysts’ 66-cent forecast.
• Total revenue increased slightly to $22.8 billion.
• Bank of America also said Thursday that it plans to boost its capital returns once restrictions from the Federal Reserve are lifted. The bank’s board authorized $25 billion of stock buybacks over time.

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