GS Goldman Sachs Group Inc

By Ben Eisen 

The biggest U.S. banks have withstood the recession brought by the coronavirus pandemic, but they haven't been immune to the low rates the crisis ushered in.

A drop in interest income helped drag down earnings at Bank of America Corp., which fell 22% in the fourth quarter. The second-largest bank in the U.S. said Tuesday that its profit totaled $5.47 billion in the final three months of the year, versus $6.99 billion a year earlier.

Per-share earnings of 59 cents topped analyst estimates of 55 cents. Still, the year-over-year profit decline was the worst showing of any big bank to report earnings so far. Goldman Sachs Group Inc. said Tuesday its fourth-quarter profit jumped 135%.

Rock-bottom interest rates have been a challenge for lenders including Bank of America, which make money on the difference between what they pay to depositors and what they earn from lending. Bank of America's net interest income fell 16% from a year earlier to $10.25 billion, though it was up slightly from the third quarter.

Deposits at the bank grew by about a quarter over the past year, with nervous consumers and companies looking for a safe place to stash their money. But the economic fallout from the coronavirus crisis has sapped customer demand for loans. The bank's book of outstanding loans and leases, which had initially grown at the beginning of the pandemic, shrunk to $927.86 billion at year-end, its smallest in more than three years.

The Federal Reserve cut its benchmark interest rate to near-zero in March to try to stave off an economic collapse. Bank of America is particularly dependent on U.S. interest rates given its large base of U.S. deposits and loans.

Chief Financial Officer Paul Donofrio said on a call with journalists that he expects loan balances to rise this year. "I think it will start slow and be more in the back half of the year," he said.

Wall Street powered earnings at JPMorgan Chase & Co. and Citigroup Inc. despite relatively weak showings in their consumer banks. Buoyant markets also benefited Bank of America's trading arm, but not as much as its rivals. Adjusted trading revenue of $3.06 billion in the fourth quarter was up 7% from $2.86 billion a year ago. The bank's fixed-income traders brought in less revenue than a year earlier, though its equity trading revenue was up.

The investment-banking division posted fee growth of 26% from a year ago, fueled by underwriting of initial public offerings. Total fees of $1.86 billion compared with $1.47 billion a year earlier.

Goldman, meanwhile, said Tuesday that profit was lifted by a 23% rise in its trading revenue and 68% jump in underwriting fees.

Bank of America's revenue totaled $20.1 billion in the fourth quarter, down 10% from the fourth quarter of 2019. That missed the $20.58 billion expected by analysts polled by FactSet.

Noninterest income fell 4% to $9.85 billion and noninterest expenses were 5% higher than a year earlier, totaling $13.93 billion.

Like JPMorgan and Citigroup, Bank of America released some of the reserves it had set aside to bulwark against bad loans. The bank said it released $828 million, a small share of the money it has stowed away to cover bad loans but a sign that its executives believe there may not be as much consumer and business distress as initially thought.

The largest banks spent the first part of last year building up reserves to prepare for a wave of loan defaults. While Bank of America processed some 2 million deferrals when the pandemic hit, only 77,000 of them were still in place at the end of last year.

The Fed, which had restricted banks' returns to shareholders last year, told them last month they could once again buy back their own stock, with limits. Bank of America said Tuesday that its board authorized a $2.9 billion repurchase plan for the first quarter.

While the continued spread of Covid-19 has put millions out of work and left many unable to pay their bills, Americans overall have continued to spend. "We continued to see signs of a recovery, led by increased consumer spending, stabilizing loan demand by our commercial customers, and strong markets and investing activity," Chief Executive Brian Moynihan said in a statement.

The bank charged off $881 million of its loans in the quarter, down about 8% from a year earlier, though net charge-offs increased in its commercial banking arm from a year earlier.

Bank of America shares fell 0.7% Tuesday. Bank stocks started the year strong, in part on the prospect of rising interest rates. The KBW Nasdaq Bank Index has climbed about 9.7% this year, versus a 1.1% rise in the S&P 500.

Write to Ben Eisen at ben.eisen@wsj.com

(END) Dow Jones Newswires

January 19, 2021 16:50 ET (21:50 GMT)

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