Bank of America's Q1 Profits Decline Amid Rising Expenses and Credit Losses

Bank of America's Q1 profits fell 18% due to higher expenses and credit loss provisions, mirroring other major banks. However, investment banking and wealth management divisions saw growth, offsetting the impact of rising interest rates.

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Bijay Laxmi
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Bank of America's Q1 Profits Decline Amid Rising Expenses and Credit Losses

Bank of America's Q1 Profits Decline Amid Rising Expenses and Credit Losses

Bank of America reported an 18% decline in first-quarter profits, primarily due to higher expenses related to the impact of rising interest rates. The bank's net income fell to $6.9 billion, or 80 cents per share, from $7.8 billion, or 86 cents per share, a year earlier. Excluding a one-time $700 million charge to replenish the Federal Deposit Insurance Corp.'s deposit insurance fund, the bank earned 83 cents per share, beating analysts' estimates.

The bank's revenue rose 13% to $23.2 billion, driven by a 23% increase in net interest income. However, noninterest expenses increased 16% to $15.6 billion, mainly due to higher personnel and technology costs. Bank of America also set aside more money to cover potential loan defaults, with its provision for credit losses at $1.4 billion, compared to a $30 million benefit a year earlier.

The higher interest rates have affected the bank's loan and investment portfolio, as well as the interest it pays on deposits, leading to a decline in its net interest yield. In the consumer banking division, revenue fell by 5% due to the bank setting aside more funds to cover potential loans and charged-off credit cards. Net charge-offs rose to $1.5 billion, mainly from credit card losses.

Why this matters: Bank of America's results mirror those of other major banks like JPMorgan Chase, Wells Fargo, and Citigroup, which also reported declines in first-quarter profits due to higher expenses and credit loss provisions. The impact of rising interest rates on banks' net interest income and loan portfolios is a key concern for investors and the broader economy.

Despite the challenges, Bank of America's investment banking was a strong point, with global investment banking fees up 35% to $1.6 billion in the quarter, partially offsetting the decline in interest payments. The bank's wealth management division also saw a 10% increase in profit to $1 billion as rising equity values generated higher fees. Bank of America CEO Brian Moynihan said the bank will reduce headcount as predicted in January and has already cut the workforce by more than 4,700 employees.

Key Takeaways

  • Bank of America's Q1 profits fell 18% due to higher expenses, credit losses.
  • Revenue rose 13% driven by 23% increase in net interest income.
  • Noninterest expenses up 16% due to higher personnel, technology costs.
  • Bank set aside $1.4B to cover potential loan defaults, up from $30M.
  • Investment banking, wealth management divisions partially offset interest rate impact.