BofA Profits Decline in Q1 ’24
Bank of America (BofA) has experienced a downturn in its profitability in the first quarter of 2024, with a reduced income from customer interest payments playing a significant role in this decline. The notable drop in net interest income (NII), which is the difference between the revenue generated from loans and the cost of handling deposits, was recorded at $14 billion, marking a 3 per cent decrease.
The banking executives have pointed out the difficulties in projecting future earnings, given the uncertain economic environment and changing expectations for the US interest rates. The interest rate policies set by the Federal Reserve in the coming months are crucial. They have the potential to either enhance lenders’ profits, which have benefitted from the rising interest rates in recent years, or to decrease earnings if the economic uncertainties lead to reduced loan acquisitions.
The bank, however, saw some positive momentum within its investment banking and wealth management divisions, which helped to offset the decline to some extent. Specifically, investment banking fees experienced a significant jump, increasing by 35 per cent to $1.6 billion. This increase aligns with the expectations set forth by BofA’s Chief Financial Officer Alastair Borthwick, who had forecasted a 10 to 15 per cent rise in investment banking revenue compared to the same period last year.
This upward trend in investment banking revenue is not unique to BofA, as competitors such as JPMorgan Chase and Citigroup have also reported growth in the first quarter. Notably, Goldman Sachs reported earnings that exceeded expectations, primarily due to strong performances in underwriting, deals, and bond trading, achieving the highest earnings per share since late 2021.
Despite these positive developments in certain segments, the industry remains guarded in its optimism regarding the recovery in dealmaking activities. This is partly because the US economy has shown resilience, and equity markets have remained active, yet uncertainties persist.
Adding to the challenges faced in the quarter, BofA incurred additional costs, including a $700 million charge for replenishing a government deposit insurance fund. This fund had been depleted by $16 billion to safeguard depositors of two banks that collapsed in 2023, adding a layer of complexity to the bank’s financial landscape.
The culmination of these factors resulted in BofA posting a profit of $6.7 billion for the first quarter, or 76 cents per share. This represents a decline from the $8.2 billion profit, or 94 cents per share, reported in the same quarter of the previous year. As the banking sector grapples with these challenges, the focus remains on navigating through the uncertainties in the interest rates and economic outlooks to pave the way for future profitability.
