2016 is getting off to a lousy start for major USA banks.
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Analysts said there may be some loan growth outside of the energy sector, and a small uptick in net interest margins, a measure of loan profitability, but overall, the tone was less-than-optimistic.
The data could add to speculation about when the Fed will pull the trigger on interest rates, with the market pricing in only one hike this year and the central bank projecting two.
FILE – In this December 13, 2012 file photo, a customer stops at a Bank of America ATM office in Boston. Despite the financial sector sliding thus far in 2016, these banks all had fairly positive earnings, but for different reasons.
OIL TROUBLES: The billions of dollars in oil loans the big banks made during the commodities boom have become the latest set of troubled assets on their books.
At Wells Fargo, the number-three bank, results were negatively hit by an increase of US$200 million in reserves in case of bad loans to oil and gas companies, a portfolio that “remains under significant stress due to low prices and excess leverage”, said Wells Fargo chief risk officer Mike Loughlin. Results at Bank of America and JPMorgan, which have large investment banking and trading units, also slumped in the quarter.
The bank’s net interest income (NII) was up 0.4% in the quarter, due to a huge settlement the bank paid for its poor lending practices during the 2001-2008 period. “This looks to be the worst quarter of the year for both of those metrics, not just for energy but for the S&P 500 index”.
That has forced banks to raise the money they set aside to cover the possible failure of energy firms.
“We haven’t seen the last of the problems with the banks’ energy loans”, Thomas said.
Net income in the quarter plunged 18.1% to $2.22 billion or 21 cents per diluted share compared to $2.71 billion or 25 cents per share from the same quarter a year ago. However, 1Q16 hasn’t been favorable to client activity and trading, as financial markets have been extremely volatile during the quarter.
BlackRock Inc (BLK), the investment and financial services provider said revenues in the first-quarter ending in March fell 4% from a year ago to $2.62 billion.
B of A sustained the same fate, with its sales and trading revenue falling 16 percent to $3.3 billion in the quarter.
On Tuesday, mortgage rates inched lower once more, continuing the downward trend of the last month after Federal Reserve Chair Janet Yellen expressed caution about increasing rates.
BofA’s shares, which fell 20 percent in the quarter, were down slightly in premarket trading after rising 3.9 percent on Wednesday following better-than-expected earnings from JPMorgan Chase & Co, the biggest U.S bank.
Chief executive Brian Moynihan said the bank would continue to focus on “loan and deposit growth and managing expenses”.
Meanwhile, metrics that show consumers struggling to pay their loans continue to decline. Much of the good news that came from the banks’ consumer businesses, however, was overshadowed by issues in their commercial loan portfolios, where persistently low oil and gas prices have put pressure on the highly indebted energy industry.
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Wells Fargo: Its first-quarter net income, also released Thursday, fell 6% year-over-year to $5.46 billion.
