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The largest US banks lent billions of dollars less in the first quarter, in a sign that corporate borrowers are paying down debt as interest rates hover at historically high levels.
Bank of America, the nation’s second-largest lender, said as it reported results on Tuesday that new loan growth stalled in the quarter, with BofA’s chief financial officer Alastair Borthwick calling lending “sluggish”. PNC, the Pittsburgh-based regional lender, reported that lending dropped by $4bn or 1 per cent.
Other top banks Citigroup, JPMorgan Chase and Wells Fargo also recorded drops in lending in the first three months of the year as they revealed results late last week.
Discussing loan volumes in the quarter, BofA’s top executives were reluctant to say it was a sign that the economy was worsening.
Instead, they said consumer spending remained strong, and much of the drop in lending came from large companies, which have used their excess cash, or better markets, to pay down debt.
“People are feeling fine, but they’re not quite as aggressive as [you would expect] they would be when you read the economic statistics,” BofA chief executive Brian Moynihan told analysts on the bank’s post-earnings call on Tuesday morning. “That’s one of the great debates that you can read about in the paper every day.”
BofA disclosed the slowdown in loan growth as it reported first-quarter profits fell almost a fifth, while it set aside an additional $1.3bn for losses on its current loan portfolio, or 19 per cent more than it had in the previous quarter.
Shares of BofA dropped 3 per cent on its earnings news. PNC declined 2 per cent.
BofA increased its estimate of expected loan losses at a time when its rivals were seeing loan losses level off.
By comparison, loan loss provisions dropped at Citi, JPMorgan and Wells Fargo, by 33 per cent, 32 per cent and 29 per cent, respectively, from their prior quarters.
BofA’s Borthwick said he felt his bank, in setting its provision, was getting a head start on the loan problems, and that results by bank can vary quarter to quarter.
“We are trying to get ahead of things,” Borthwick said on a call with reporters following the earnings report. “We expect losses to fall from here.”
The bank said much of the jump in loan losses was tied to credit cards and commercial real estate. The bank said it took losses on 16 different office loans in the quarter.
Results at BofA, like its large competitors, were also dragged down by costs tied to last year’s regional banking crisis after the Federal Deposit Insurance Corp imposed another round of fees on the nation’s largest banks to rebuild its depleted deposit insurance fund.
The bank’s performance received a boost by a rebound in dealmaking that has also buoyed Wall Street rivals. BofA’s investment banking revenues rose 35 per cent from a year earlier, generating $1.6bn in fees, or $300mn more than expected. The lender said its Wall Street sales and trading businesses enjoyed their best start to the year in more than a decade.
In all, BofA’s net profit fell to $6.7bn in the first three months of the year from $8.2bn a year earlier, the Charlotte-based lender said. Revenues in the period slipped 1 per cent to just below $26bn.
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