Bank of America adds $4B to reserves for problem loans
Bank of America boosted its reserves for problem loans to more than $5 billion as it braces for borrowers missing payment deadlines and bankruptcies as a result of businesses forced to limit operations during the coronavirus pandemic.
Based in Charlotte, N.C., Bank of America has the largest book of business of any bank in Connecticut with 23 cents of every dollar on deposit for $32 billion as of June 2019, and nearly 120 branches statewide. People’s United Financial reports its second-quarter results next week, with the Bridgeport-based bank the largest depositor in Fairfield County.
Bank of America remains profitable with earnings of $3.5 billion in the second quarter, off 13 percent from the first quarter and down by more than half from a year ago. Since the onset of the pandemic, the company has deferred varying credit card and loan payments for 1.8 million customers, the vast majority which remain in effect but which CEO Brian Moynihan said some of which were the result of “panic” requests from those fearing an immediate hit to their budgets in the early days of the pandemic.
“If somebody calls up and says, ‘I’m unemployed and
I can’t work,’ we’re going to work with them — both on the fee side and the collection side,” Moynihan said on a conference call Thursday. “Our view, from the start, was that we wanted to have that dialogue with the consumer to help figure out where they stand, and so that activity (will) start to pick up. The waivers, by defini
tion, were 90 days and they start to roll off.”
It marked the second straight quarter Bank of America has tacked on $4 billion to reserves. Moynihan said that federal stimulus programs appear to have worked in helping households and businesses stay on their feet, but that the bank anticipates increases in bad debt in future reporting periods.
“Right now we are seeing nothing that is consistent with an 11-percent unemployment rate, in terms of the actual consumer payment behavior,” Moynihan said, citing the official U.S. Department of Labor unemployment estimate. “That has to do with the stimulus, that is different in this crisis . ... It was given directly to consumers to sustain their ability to carry their day-to-day expenses.”
Business customers socked away an extra $131 billion into savings accounts in the second
quarter, which Bank of America stated reflected many drawing down existing credit lines as well as deposits from moneys received through government stimulus programs.
The company issued some 334,000 business loans for $25 billion under the Paycheck Protection Program of the U.S. Department of the Treasury, which are guaranteed under the Coronavirus Aid, Relief and Economic Security Act and which are forgiven if employers do not lay off workers. Moynihan noted that PPP represents
an ongoing stimulus as employers issue paychecks on their normal schedules, with deferred tax payments representing an offsetting drain whether by businesses or households.
Bank of America has committed itself to a policy of no coronavirus-related layoffs this year, while noting about 21,000 employees have been “reskilled” in its words to assist in areas of need like loan departments.