Bank of America Tops Fourth-Quarter Profit Estimates

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The second-largest US bank by assets, Bank of America released its fourth-quarter earnings Tuesday before the market opened. The bank topped Wall Street’s estimates for profit, falling slightly short of the expected revenue.

Earnings Overview

It reported a profit of $5.47 billion or 59 cents per share, 4 cents higher than estimates of Refinitiv’s analysts. Revenue was $20.2 billion as compared to estimates of $20.7 billion. Both the earnings and revenue were lower by 21.3% and 10.6% respectively, as compared to the same period last year.

Releasing Cash Reserves

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The bank released $828 million of the cash reserves that it had built up for loan losses caused by the pandemic. The multinational investment bank booked a $53 million provision for credit losses in the final quarter of 2020, allowing it to pay 18 cents per share dividend for the quarter. For the previous three quarters, it had booked $11.3 billion of provisions.

As banks are gaining more confidence in the economy, thanks to the stimulus package and development of the vaccine, they are releasing their loan-loss reserves. Last week, Bank of America rivals JP Morgan and Citigroup released around $4.4 billion in reserves combined.

Declining Revenue

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Part of the fall in revenue was caused due to the falling sales of macro products and mortgages of the bank’s trading division. Bank of America posted $1.74 billion revenue in fixed income, falling 5%, as compared to $2.11 billion of analysts estimates.

On the other hand, equities revenue exceeded expectations of $1.22 billion, posting $1.32 billion, 20% higher. Still, the performance was poor as compared to rival JP Morgan that posted record revenue in investment banking in its fourth-quarter results.

Buyback Plan

The bank also revealed its plans to buy back $2.9 billion in shares this quarter, the most allowed by the new Federal Reserve guidelines. This will be in addition to the $300 million worth of share repurchases that offset stocks awarded to employees. It pointed out that it had $36 billion excess capital than required to meet the minimum requirements. After winning Fed approval last month, big banks are now starting share buybacks again.

 

Shares of the bank have fallen 15% in 2020 as compared to the 4.3% fall in the KBW Bank Index. Shares declined 1.4% to an opening price of $32.55 in premarket trading following the earnings release.

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