With$Bank of America (BAC.US)$Announcing financial results for the first quarter, all major Wall Street banks have disclosed their “report cards” for the first quarter. Overall, the performance of the major banks was mixed.
Driven by a decline in net interest income and a surge in commercial real estate losses, Bank of America's profit declined sharply in the first quarter. Financial reports show that Bank of America's revenue for the first quarter was 25.8 billion US dollars, down 2% year on year, and net profit fell 18% year on year to 6.67 billion US dollars.
As financing costs rose as interest rates rose, Bank of America's net interest income continued to decline in the first quarter, falling by US$400 million to US$14.19 billion, a year-on-year decrease of 3%. This is also the main reason for the sharp decline in profits.
Despite a decline in net interest income, Bank of America's investment banking business and wealth management revenue increased, which helped to offset the decline in net profit to a certain extent. Investment banking revenue surpassed expectations by 35% to US$1.57 billion, to an estimated US$1.36 billion. The global wealth and investment management sector's revenue was US$5.59 billion, up 5% year over year, and achieved 21 consecutive quarters of growth.
Commercial banks are also facing downward pressure on net interest income
$PNC Financial Services (PNC.US)$Net profit for the first quarter was US$1.34 billion, down 21% year on year, mainly due to a decrease in net interest income due to rising deposit costs.
Financial reports show that although rising asset values drive up investment service costs,$Bank of New York Mellon (BK.US)$Net profit is still up 5% year over year. However, net interest income is still putting pressure on overall profits.
On Friday, J.P. Morgan Chase and Wells Fargo's net interest income guidance fell short of expectations, indicating that the advantages high interest rates bring to banks may be gradually diminishing.
Most banks have seen an increase in bad loans
Bank of America's non-performing loans in the first quarter were 5.9 billion US dollars, compared to 3.9 billion US dollars in the same period last year,$JPMorgan (JPM.US)$Non-performing loans increased 11.3% year over year to $7.7 billion.
David Wagner, portfolio manager at Aptus Capital Advisors, stated, “Bank of America is a weather vane for consumer trends, and the increase in credit card delinquency rates is shocking.”
In the first quarter, Bank of America's net write-off (debt considered irrecoverable) rose from $807 million the previous year to $1.5 billion, mostly due to credit card defaults. Chief Financial Officer Alastair Borthwick said that these net write-offs are mainly due to arrears from the previous quarter, which have now gradually stabilized.
Bank of America appears to be more cautious in dealing with potential debt losses. Financial reports show that Bank of America raised its loan loss reserve from 1.1 billion US dollars in the fourth quarter of last year to 1.32 billion US dollars in the first quarter of this year.
The investment banking business is generally better than the commercial banking sector
Not only is Bank of America's investment banking business growing, driven by rising debt and equity capital markets, its rivals Komo and$Citigroup (C.US)$The sector's revenue for the first quarter also rose at the same time.
$Goldman Sachs (GS.US)$On Monday, the report said that its first-quarter profit exceeded expectations, driven by strong performance in underwriting, trading and bond trading, which raised its earnings per share to the highest level since the end of 2021.$Morgan Stanley (MS.US)$The performance was also better than expected. Its investment bank revenue rose 19% over the same period last year, mainly due to an increase in equity and fixed income underwriting business.
What are the prospects for the banking sector?
A bank executive said that uncertain economic prospects and changes in expectations of lower US interest rates make predicting future profits more difficult. If the Federal Reserve maintains high interest rates over the next few months, banks that have profiteed well in the past two years from rising interest rates may further expand their earnings. But if economic pressure causes loans to decline, these banks' earnings may decline.
Bank of America Chief Financial Officer Borthwick said during the earnings call: “We still expect the second quarter to be a low point in net interest income, but there will be an increase in the second half of 2024.”
Commercial real estate is another worrying aspect. Banks have written down more office loans, which has increased commercial sector loan losses to a certain extent. However, Bank of America's chief financial officer said the bank's commercial real estate risk exposure is limited and is reviewing ratings, property evaluations, and sales.
Overall, the environment facing banks is likely to remain complex. Therefore, how to allocate credit resources and how to deal with economic uncertainty is a continuous test for large banks.
editor/tolk