Bank of America has today reported a steep drop in first-quarter profit as it prepared for billions in potential loan losses amid fears that the coronavirus pandemic would plunge the economy into its worst recession in generations.
Sweeping lockdowns to curb the spread of the virus have shutterred businesses around the world, forced dramatic interest rate cuts and put nearly 17 million Americans out of work, prompting Wall Street banks to set aside billions to cover for potential losses.
Including Bank of America's reserve build of $3.6 billion, the top four US lenders have set aside a combined $14.2 billion in loan loss provisions.
Bank of America's total provisions is more than three times its actual first-quarter loan losses of $1.1 billion.
However, the bank is still growing its loan book in the hope that it can position itself as part of the solution to this financial crisis, rather than the culprit as in 2008.
Even with all the challenges, analysts expect Bank of America, known as a more conservative bank, to weather the downturn better than its peers due to its smaller exposure to credit cards and tighter credit standards.
The second-largest US bank by assets used its fortified balance sheet to extend an additional $57 billion in loans, or a 6% increase during the quarter, as cash-strapped companies tapped credit lines and sought new loans to help tide them through the crisis.
Overall, net income applicable to common shareholders fell to $3.54 billion, or 40 cents per share, in the first quarter, coming in below the 46 cents per share predicted by analysts, according to Refinitiv data.
Bank of America was also the first major bank to participate in the US Treasury's $349 billion small business rescue programme, while other banks were hesitant to begin accepting applications due to scant details from government officials.
The bank started accepting applications within hours of the official launch and said it received 279,000 small business loan applications up to April 8 under the Paycheck Protection Program, totalling $43 billion.
But Bank of America's eagerness to lend a hand has not earned it much credit from critics who say banks can do more to help small businesses customers who say they aren't getting the help they need.
