Despite the global economic slowdown occasioned by the COVID-19 pandemic, Bank of America managed to turn a sizeable profit during the first half of 2020. According to the research data analyzed and published by ForexSchooOnline.com, the bank reported a profit of $7.5 billion for the two quarters.
During the first quarter of 2020, Bank of America reported profits amounting to $4 billion, a drop of 45% compared to the $7.3 billion reported in Q1 2019. The second quarter of 2020 was even worse, with a 52% drop YoY to $3.5 billion. Courtesy of the Fed’s emergency rate reductions, interest income in Q2 2020 amounted to $11 billion, marking a drop of 11% compared to Q2 2019.
Even though there were changes in interest rates and credit spreads were widened, the bank still managed to get $9.3 billion for its Q1 2020 pre-tax pre-provision income, down only 5% YoY. In Q2 2020, pre-tax pre-provision income amounted to $8.9 billion, a decline of 9% YoY.
During the first half of 2020, total deposits increased by $284 billion and reached $1.72 trillion. Consumer deposits rose 17% or $123 billion. On the other hand, global banking deposits grew $118 billion or 31%, while wealth management deposits increased $29 billion or 11%. Thanks to this surge in deposits, the bank’s balance sheet at the end of Q2 2020 held total assets worth $2.7 trillion. This was an increase of $122 billion from Q1 2020.
Trading Volumes Grow 31% YoY During H1 2020
Even though the H1 profits mark a drop of 49% compared to the first half of 2019, its performance beat expectations. Part of the reason for this is the fact that trading revenue increased, helping to offset the drop in interest income and provisions for loan loss.
Sales and trading revenue grew a remarkable 35% YoY. Investment banking fees also increased 57% YoY to a record $2.2 billion. On average, there was an improvement of $1.9 billion in sales and trading compared to a similar period last year. There was a 31% improvement in overall trading volumes during H1 2020 as compared to the same period in 2019.
However, provisions for bad loans ate up the hugest chunk of income, as the burden increased from $1.9 billion in H1 2019 to $9.9 billion in H1 2020. This was in view of the fact that the economic downturn could hamper the capability of consumers to repay loans.
The 5x increase in provisions for loan losses was thus in anticipation of the risk. With the amount the bank has set aside, it now has the capacity to cover potential loan losses of up to 1.96% of all loans.
Another area in which the bank excelled was in its Global Markets segment. The segment by itself made $1.9 billion in after-tax profits in Q2 2020. To a great extent, this was as a result of a surge in investor demand for the relative security of bonds.
BAC Stock Down 30% YTD
It is noteworthy that Bank of America stock lost at least 49% in Q1, dropping from $36 to $18 between the end of 2019 and end of March 2020. Though it rose 34% to $24 at the end of Q2, it still remains down almost 30% at $26 in early September compared to the start of 2020.
According to a Trefis estimate though, the valuation of the BAC stock should be about $29. The valuation, which is almost 20% higher than the current price, is based on improved performance during H2 2020.
It estimates that 2020 revenue for the bank will amount to $86.4 billion, marking a drop of only 5% compared to 2019. This forecast is based on the possibility that the second half of 2020 will see the economy open up. Additionally, with the easing of restrictions and lockdowns around the globe, consumer demand is likely to get a boost.
The banking sector as a whole fared far worse than most others due to its close ties with the economy. Little wonder, at the beginning of August, the KBW Bank Index was still down over 31% compared to the end of February. Similarly, the STOXX North America 600 Bank Index showed a decline of -31.23% in H2 2020.
In Europe and Asia, the situation was more or less the same during the first half of 2020. The Euro STOXX Bank Index showed a -40.18% drop and the STOXX Asia/Pacific 600 Banks Index reported a drop of -26.09%.