Affected by high interest rates, Bank of America's Q1 net profit fell by 18%, with unexpected surge in losses from commercial real estate | Financial Report Insights
Bank of America's net profit in the first quarter fell by 18%, mainly dragged down by a decline in net interest income and a sharp increase in losses in commercial real estate. Despite revenue exceeding expectations, net profit declined year-on-year, while earnings per share exceeded expectations. The CEO of Bank of America stated that the business performed well, attracting more customers and deepening cooperation relationships. Net interest income continued to decline, while stock trading business reached a new record high. Consumer banking business and global wealth and investment management department saw stable revenue growth, while global banking and markets department revenue increased slightly. Overall, Bank of America's performance was strong, with investment banking revenue exceeding expectations
Due to a sharp decline in net interest income and a significant increase in losses from commercial real estate, Bank of America's profit plummeted in the first quarter.
Before the market opened on Tuesday, April 16th, Bank of America (BAC) released its first-quarter earnings report for the period ending March 31st. The financial report revealed that Bank of America's first-quarter revenue was $25.8 billion, exceeding the expected $25.46 billion, a 2% year-on-year decrease, with net profit dropping by 18% to $6.67 billion, and adjusted earnings per share of 83 cents, surpassing the expected 77 cents.
After the financial report was released, Bank of America's stock price initially dropped by over 2% in pre-market trading, then rebounded, currently up by 2.9%.
Bank of America's CEO, Brian Moynihan, stated in the financial report:
"Our business performed well this quarter, gaining customers and deepening relationships. Our consumer checking accounts reached 36.9 million, achieving net growth for 21 consecutive quarters. Our wealth management team generated record revenue, customer balances reached new highs, and the investment banking business rebounded."
"Bank of America's sales and trading business continued its strong momentum from 2023 this quarter, reporting the best first-quarter performance in over a decade."
Continued Decline in Net Interest Income, Record High in Stock Trading Business
Due to the rise in financing costs with increasing interest rates, Bank of America's net interest income continued to decline, decreasing by $400 million to $14.19 billion, a 3% year-on-year decrease, becoming the main reason for the sharp decline in profit this quarter.
By segment, the Consumer Banking division's revenue for the first quarter was $10.166 billion; Global Wealth and Investment Management division's revenue was $5.59 billion, a 5% year-on-year growth, achieving growth for 21 consecutive quarters; Global Banking and Markets division's revenues were $5.98 billion and $5.88 billion respectively, with investment banking fees increasing by 35% to $1.6 billion.
By business line, FICC business (Fixed Income, Currencies, and Commodities) revenue decreased by 6% year-on-year to $3.2 billion, mainly driven by a weak macro product trading environment, but improved mortgage trading offset some of the impact; Investment banking business revenue surged beyond expectations by 35% to $1.57 billion, exceeding the expected $1.36 billion Driven by the strong performance of derivative trading, stock revenue increased by 14% to $1.9 billion, achieving one of the best quarterly levels on record.
It is worth noting that Bank of America's write-offs in the first quarter surged to $1.5 billion, with non-performing loans reaching $5.9 billion, an increase of $400 million compared to the previous quarter, mainly driven by commercial real estate.
Analysts have warned that despite Bank of America's mostly better-than-expected performance report this quarter, significant losses in commercial real estate and credit card risks are beginning to emerge as a "matter of time"