The second largest bank in America wrote off $1.5 Billion of bad loans during the first quarter of this year, due to mounting losses on credit cards as well as its exposure to the faltering office market.
Bank of America reported that the net charge-offs of its debts they did not expect it to recover jumped from $807 millions a year earlier to $1.5 billion.
Credit cards were the main contributors to the rise, with their loss rate increasing to 3.62 percent from 3.07 percent in the last three months of the previous year. However, souring loans related to offices contributed as well.
The overall net profit for the quarter fell to $6.7 billion, down from $8.2billion a year ago. Provisions for credit loss increased from $931 to $1.3 billion, exceeding the $1.26 million that Wall Street analysts had predicted. Shares of the lender fell by 3.5%, or $1.27 to close at $34.68.
Bank of America is a large business with roots dating back to 1904. It is headed by Brian Moynihan (64), its CEO. The results of Bank of America, as well as those from JP Morgan, a larger competitor, are closely watched by the American public.
Alastair Borthwick said the Bank of America finance chief was “encouraged by the trends” in credit card delinquencies. He also stated that it expects net charge-offs to start to level off over the next quarter.
He stated that losses on office property had been “front loaded and largely reserved”, and said: “We expect losses to move down in the second quarter, and we expect a noticeable decline in the latter half of the calendar year compared to the first half, absent any significant change in real estate prices”.
Wall Street firms are also grappling with a decline in dealmaking that has affected their investment banking divisions, which charge fees for providing advice on takeovers or fundraisings. Moynihan said that this has led to job losses in the entire industry. Bank of America had a headcount of 4,700 less than a year ago at the end of first quarter.
Recent increases in deal volume are now boosting investment bankers in both America and Britain. Moynihan’s investment banking operation “saw a lovely rebound” in its first quarter with fees increasing by 35 percent to $1.6 billion.
Morgan Stanley, a second big American bank, also said that it was boosted by recent dealmaking. Its investment banking revenues grew by 16 percent year-on-year in the first quarter to reach more than $1.4 Billion, thanks to initial public offerings (IPOs) and other share sales. The group’s overall net profit rose from $3 billion to $3.4 billion in the first quarter of 2013.
Ted Pick, aged 55, took over from James Gorman at the beginning of the year. This was his first time running Morgan Stanley. Gorman transformed the bank into the largest wealth manager in the world after he revived it following its near collapse during the financial crisis of 2007-09. The wealth division of Morgan Stanley attracted $95 Billion in net new assets over the first three months, dwarfing $47.5 Billion attracted during the previous three months. Morgan Stanley’s shares closed last night at $89.14, up 2.5% or $2.15.