[Overseas Stocks Spotlight] "Bank of America, Slowly but Surely Improving Performance"

[Asia Economy Reporter Eunmo Koo] IBK Investment & Securities analyzed that Bank of America (BAC.US) is experiencing continued pressure on net interest margin (NIM) due to low interest rates, but its performance is improving as credit costs normalize.

Net income for the third quarter this year was $4.88 billion, down 15.5% compared to the same period last year, but up 38.2% from the previous quarter. Earnings per share (EPS) were $0.51, exceeding market consensus by 3.4%. Third-quarter net operating revenue was $20.3 billion, an 11% decrease year-over-year. Profits from major business segments in Q3 were $2.05 billion from Commercial Banking (CB), $750 million from Global Wealth & Investment Management (GWIM), and $930 million from Global Banking (GB), all down compared to the same period last year, while the Global Markets segment increased by 1.1% to $857 million.

Researcher Eungap Kim of IBK Investment & Securities explained in a report on the 13th, “Interest income decreased by 7% compared to Q2, so pressure on NIM from low interest rates persisted, but performance improved as credit costs sharply declined.” The Q3 NIM was 1.72%, down 15 basis points from Q2 and down 63 basis points compared to Q4 2019, resulting in Q3 interest income being about 20% lower than the quarterly interest income in 2019.

Kim added, “Other U.S. banks showed relatively strong results in investment banking (IB) and trading, but Bank of America’s performance in these areas was relatively weak, and the impact of NIM decline was relatively large, so its performance improvement lagged behind other banks.” Non-interest income was $10.2 billion, down 3.9% year-over-year, with sales and trading revenue at $3.2 billion and IB fees at $1.8 billion, decreasing 23% and 18% respectively from Q2.

Credit cost normalization is underway. Third-quarter credit costs were about $1.4 billion, higher than the average quarterly figure in 2019 but significantly lower than the worsened first quarter ($4.76 billion) and second quarter ($5.12 billion), contributing to net income normalization. Researcher Kim forecasted, “Provisions for the hotel and airline industries have increased significantly, so the impact of credit costs will continue depending on the progression of the COVID-19 pandemic.”