In earnings reports on Wednesday, three big Wall Street banks reported stronger earnings this quarter, in large part due to the improving economy and lower delinquencies on loans.
Bank of America’s second quarter profit more than doubled from a year ago, with the consumer banking giant able to shift more loans to the ‘good’ side of its balance sheet as the pandemic s fade.
But like other banks, Bank of America saw lower interest income and revenue from the previous year due to lower interest rates.
The Charlotte, North Carolina bank said it earned $ 9.22 billion in the past three months, or $ 1.03 per share. This is an increase from earnings of $ 3.53 billion, or 37 cents per share, compared to the same period a year earlier. The results were better than the earnings of 77 cents a share that analysts had predicted, according to FactSet.
Bank of America earnings were boosted by two one-off items. The bank was able to free up $ 1.6 billion from its loan loss reserves it built up during the pandemic to guard against defaults, and also recorded a one-time credit of $ 2 billion linked to certain UK taxable assets.
While the bank’s profits increased from the previous year, revenues did not increase. Interest income fell in the quarter to $ 10.23 billion from $ 10.85 billion a year earlier, on lower interest rates. Bank of America’s balance sheet is more focused on short-term securities, which means the bank’s interest income may fluctuate more when interest rates change relative to other banks.
Wells Fargo and Co. had its most profitable quarter in two years, far exceeding Wall Street estimates.
The bank earned $ 6 billion during the period, or $ 1.38 per share, easily beating analysts’ forecasts of 98 cents per share. The company lost $ 1.01 per share during the same period last year as the coronavirus pandemic ravaged the global economy.
Revenue was also much higher than expected, with the bank raking in $ 20.27 billion in the quarter. Analysts had expected revenue of $ 17.76 billion, according to FactSet.
As a sign of improving economic conditions, the San Francisco bank released $ 1.6 billion from its loan loss reserves, money set aside to cover bad debts. It set aside $ 8.4 billion to cover potentially bad debts in the second quarter of last year.
Expectations were high for banks this earnings season. Banks set aside tens of billions of dollars to guard against customer defaults at the start of the pandemic; some of those billions are now reallocated to the “good” side of their balance sheets.
Wells Fargo said its net interest income fell 11%, mainly due to falling interest rates and falling loan balances.
As previously announced, the bank plans to increase its third-quarter dividend to 20 cents per share, from 10 cents per share, pending board approval. Just over a year ago, its dividend was 51 cents per share. The company also reiterated its intention to buy $ 18 billion worth of its shares over the next four quarters.
The bank is trying to break out of strict federal guidelines that set its asset cap at just under $ 2 billion, hampering its ability to grow.
The Federal Reserve capped the size of Wells Fargo’s assets in 2018 after a series of scandals, including the discovery of millions of fake checking accounts opened by its employees to meet sales quotas. The Fed lifted that cap last April as part of the federal government’s wage protection program because many Wells Fargo small business customers were barred from applying, but most restrictions remain.
Citigroup Inc.’s profit more than quintupled from a year ago, helped by an improving economy that resulted in fewer bad debts on the bank’s balance sheet.
The New York-based bank said it earned $ 6.19 billion, or $ 2.85 per share. That’s up from earnings of $ 1.06 billion, or 38 cents a share, in the same period a year earlier. The results were significantly better than the earnings of $ 1.97 per share that analysts were expecting, according to FactSet.
Like other large banks, Citi has been able to shift previously bad loans to the “good” side of its balance sheet as the economy has improved since vaccinations became widespread. Citi was able to clear $ 2.4 billion from its loan loss reserves, compared to the $ 5.94 billion it had to put in these reserves a year earlier.
The pace of the global recovery is exceeding previous expectations and with it, consumer and business confidence is improving.
“While we should be aware of the inequality of the global recovery, we are optimistic about the momentum ahead,” Jane Fraser, CEO of Citigroup, said in a statement.
The improved balance sheet is visible in Citi’s consumer banking franchise. The division reported a profit of $ 1.8 billion in the quarter, compared to the loss it reported a year earlier. Last year’s loss was entirely related to Citi setting aside funds to cover potentially bad loans.
Citi’s trading revenue declined in the quarter, reflecting how the markets calmed down last year. The second quarter of 2020 was a time of high volatility as investors navigated the social and economic impacts of the coronavirus pandemic, which provided traders with opportunities for profit.
Total revenue for Citi’s institutional client group, which includes its trading desks, was $ 10.39 billion in the quarter, down 14% from a year earlier. Total revenue for the entire company was $ 17.5 billion.