Bank of America’s second quarter profits were sawed in half and the consumer banking giant set aside billions of dollars to cover potentially bad loans caused by the coronavirus pandemic.
Earnings from the nation’s biggest banks are painting a picture of American families and businesses struggling to pay bills with swaths of the nation’s economy shut down. While consumers have been able to withstand the brunt of the downturn due to the government’s economic stimulus efforts, banks are now bracing for a long, protracted recession that could last well into 2022.
Altogether, the five big Wall Street banks that have reported quarterly results set side more than $30 billion in the second quarter to cover loans they may not recover. Those provisions come on top of the tens of billions already set aside in the first quarter when the pandemic started taking hold.
Bank of America reported a profit of $3.53 billion, or 37 cents a share, down from $7.34 billion, or 74 cents a share, in the same period a year ago. Wall Street had actually expected worse, but shares still fell 3.4% in morning trading.
Because of its focus on consumers, Band of America is feeling the effects of the coronavirus pandemic more acutely than other major banks. During the quarter ended June 30, the bank processed 1.8 million requests for payment deferrals on credit cards, mortgages and auto loans — and 1.7 million of them were still in place as of last week.
The bank put aside $4 billion for credit losses, less than most of its competitors.
Bank of America also revised down its outlook for the U.S. economy, following similar actions by other banks this week. At the start of the pandemic, many economists and bankers expected a sharp “V”-shaped recovery as businesses that had closed began to reopen.
But a resurgence of infections in heavily populated states like California, Florida, and Texas have slowed, stopped or reversed the reopening of economies nationwide.
Consumers have been able to withstand the recession in the first few months, aided by added unemployment benefits and individual stimulus payments. The bank noted that its charge offs and write downs would be significantly higher in a typical environment, with unemployment at 11%.
But those benefits are now running out, and Bank of America executives have little hope that the U.S. economy will rebound soon. The bank told investors that it is now revising its balance sheet to withstand recessionary effects well into 2022, far further out than what it and other banks had forecast only three months prior.
Band of America now expects deferrals for consumers to remain at least into the rest of the year.
“Based on projections now, extending the length of the recessionary environment into 2022, deep into 2022, we provide substantial additional reserves for effected future credit losses this quarter,” CEO Brian Moynihan said on a call with investors.