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Bank of America Corp., the No. 2 U.S. bank by assets, reported a better-than-expected rise in profit for the final quarter of 2015, helped by a drop in expenses and revenue growth in three of its four big businesses during a tough period for the industry.
U.S. banks, like their global counterparts, have had a rough year as falling oil prices and worries about slowing growth in China contributed to weakness in credit markets, pressuring revenue growth. The new year also started on a grim note as oil prices fell below $30 a barrel and stock prices slumped.
BofA said on Tuesday its provision for credit losses in global banking increased by $264 million in the quarter ended Dec. 31, mainly due to higher energy-related charge-offs and reserve increases for energy exposure.
The bank has $21.3 billion in energy-related loans, representing about 2 percent of total loans, CFO Paul Donofrio said on conference call with reporters.
JPMorgan Chase & Co. and Wells Fargo & Co. said last week they had increased provision for bad loans related to their energy portfolio.
BofA said its net income attributable to common shareholders rose to 9.8 percent $3.01 billion, or 28 cents per share, in the quarter. Analysts on average had expected earnings of 26 cents per share, according to Thomson Reuters.
Non-interest expenses fell 2.3 percent to $13.87 billion, mainly due to a 28 percent drop in costs, excluding litigation, in the bank’s legacy asset and servicing unit, which houses many of the bad loans inherited when it took over Countrywide Financial Corp. in 2008.
“Our key conclusion from the results is that Bank of America continues to make progress on its key priorities of growing loans and business volumes to drive higher revenue and reducing core expenses,” Eric Wasserstrom, an analyst at Guggenheim Securities, wrote in a note to clients.
“However, the deterioration in energy lending may undermine this progress in the short term,” he added.
Fixed-Income Revenue Rises
BofA, whose shares were up 2.2 percent in premarket trading, has been hit by high legal costs since the financial crisis, undermining many of the cost cutting initiatives initiated by CEO Brian Moynihan.
The Charlotte, North Carolina-based lender has been slashing billions of dollars in costs in its commercial lending, investment banking and wealth management businesses in efforts to mitigate sluggish revenue growth.
“Our results this quarter reflect our ongoing efforts to improve operating leverage while continuing to invest in our business. We increased net interest income (and) managed expenses tightly,” Moynihan said in a statement.
Total revenue rose 4.3 percent to $19.53 billion, with revenue from consumer banking, BofA’s largest business, increasing 0.4 percent.
Global markets revenue rose 31 percent to $3.13 billion, accounting for 16 percent of total revenue. Revenue from fixed-income trading rose 20 percent.
Total net charge-offs rose 30 percent to $1.14 billion.
Up to Friday’s close of $14.46, BofA’s stock had fallen 14 percent this year, compared with a 12.9 percent fall in the KBW Bank Index. The stock fell 5.9 percent in 2015.
