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Weak Trading, Energy Loan Provisions Hits Bank of America

The Bank of America logo is seen at their offices at Canary Wharf financial district in London,

Net income fell 13% to $2.7bn (£1.9bn) at Bank of America, while Wells Fargo said net income dropped to $5.5bn in the first three months of the year.

Earnings translated into 99 cents per share, two cents above analyst expectations.

“We had $18.5 billion of oil and gas loans at the end of the first quarter, or 2 percent of total loans outstanding”, the bank’s Chief Financial Officer, John Shrewsberry, told analysts in a conference call Thursday to discuss the results. Analysts had penciled in revenue for Wells Fargo of $21.61bn. Wells Fargo reported that its quarterly net chargeoffs increased $178 million year-over-year, rising to $886 million. “As always, we are focused on loan and deposit growth and managing expenses”, said chairman and CEO Brian Moynihan in prepared remarks.

Wells Fargo set aside $1.09 billion in the quarter to cover bad loans compared with $608 million a year earlier.

“While substantially all of the loan portfolio continues to perform well, the oil and gas portfolio remains under significant stress due to low prices and excess leverage in this industry“, said Wells Fargo’s chief risk officer Mike Loughlin.

Net income fell 6% year-over-year to $5.46 billion, as the company added $200 million to its loan-loss reserves due to continued deterioration within its oil and gas portfolio. Total loans were $947.3 billion at March 31, 2016, up $30.7 billion, or 3 percent, from December 31, 2015, the report stated. Market volatility stemming from a slide in commodity and oil prices, worries about China’s economy and uncertainty about interest rates hit trading activity globally in the quarter, particularly in January and February.

Its home loans fell by $3 billion from the fourth quarter to $44 billion.

Holding more than $1.8 trillion in assets, the financial services company is less susceptible to lower trading volumes than rivals such as Citigroup (C – Get Report) , Bank of America (BAC – Get Report) and JPMorgan Chase (JPM – Get Report) , since it doesn’t rely as heavily on investment banking and trading revenues. That compares with $3.1 billion, or 25 cents a share, in the same period past year.

“Our current energy reserves provides 2 1/2 years of coverage, based upon the current quarter’s annualized charge-offs”, Donofrio said. Total average loans were $927.2 billion in the first quarter, up $14.9 billion from the prior quarter, and included an $8.8 billion impact from the GE Capital acquisitions. “In quarters like this, revenue is going to be challenged”. The San Francisco-based company’s net income fell 5% to $5.5 billion.

Wells Fargo & Company (NYSE:WFC) last closed at $47.03, sending the company’s market cap around $240.24B. This was driven by a $457 million increase in energy-related loan loss provisions, partially offset by lower credit expenses in its consumer bank.

 

 

Kim Earnest

The author Kim Earnest

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