Bank of America Corp. (NYSE: BAC) on Tuesday announced its biggest annual profit during almost a decade, but the bank’s results showed signs of strain from soured energy loans.
Bank of America, which is based in Charlotte, N.C., announced net income increased 9% to $3.3 billion or $0.28 per share compared with $3.05 billion or $0.25 per share in the same quarter of 2014. Analysts from Thomson Reuters had been expecting earnings of $0.26 per share. Revenue in fourth quarter increased about 4% to $19.8 billion which also beats the analysts’ expectations.
“We saw solid customer activity in loan growth, deposits and wealth management asset flows, and we returned more capital to our shareholders,” Bank of America’s chief executive, Brian T. Moynihan said.
Shares of all U.S. banks, including Bank of America, were slumped last Friday because of the concern about their exposure to low oil prices and troubles in China. On Tuesday’s conference call, Chief Financial Officer Paul Donofrio said, “We’re very focused on running the business here and the markets are going to do what the markets are going to do,” which responded to his Citigroup Inc. (NYSE: C) counterpart’s comment - the markets are what the markets are.
The fourth quarter earnings report closed the door on a year in which Chief Executive Brian Moynihan had hoped to prove the bank’s earnings power in the absence of the large legal bills that had characterized much of his tenure.
Until now, investors have figured that many clients of the large United States banks will actually benefit from the tumble of the energy markets because low oil price will save them more money.
But the oil price slumped below $30 per barrel is destabilizing the vast oil and gas industry, which has borrowed billions from banks like Bank of America to drill wells and explore new reserves. Previously, some companies are nearly bankrupt and the collateral backing their loans is shedding value, increasing the prospect of large losses in the banking system.
Currently, executives at the largest banks have announced the losses are manageable and oil and gas exposure is not a big part of overall loans. Shares of U.S. banks have been getting hammered since the start of 2016, when the stock market turned volatile amid the collapse in oil prices and worries for China’s economy slowdown. Bank of America’s shares are decrease more than 14% since then, while the broader market has fallen more than 8%.