Bank of America Corp (NYSE:BAC) retreated from a one-year high after reporting fourth-quarter revenues that fell short of Wall Street expectations. A 9% drop in Q4 revenues spooked the market, conversely triggering a 1% decline. Curtailing further downside action is the fact that the bank posted earnings of $0.59 a share against $0.05 a share expected.
Revenue Decline
Revenues dropping by 9% to $20.2 billion against $22.7 billion expected can be attributed to, among other things, the cutting of interest rates to record lows. Likewise, the bank could not generate optimum returns from its financial products, including loans, given the record-low interest rates. Conversely, net interest income fell 16% to $10.3 billion, mostly driven by the lower interest rates.
Amid the disappointments in revenue generation, Bank of America can heave a sigh of relief on credit loss provisions contracting to $100 million, much lower than $900 million expected. The loan provision department was expected to feel the full impact of the COVID-19 pandemic, which appears not to have been the case.
Likewise, the commercial banking sector is increasingly showing signs of improvements underpinned by a trio of effective COVID-19 vaccines. The promise of an additional stimulus package by the incoming administration is another factor that should continue to support the unit in Q1.
A massive stimulus package is expected to result in more money in people’s pockets, a development that should see significant improvement in consumer spending. Likewise, BAC should see growth in total card income up from the 3% registered in the fourth quarter.
Buyback Program
Despite feeling the full effects of the COVID-19 pandemic, Bank of America has announced plans to buy back $2.9 billion of its common stock through March. The buyback is part of the bank’s push to return value to shareholders.
The stock has so far held steady amid the mixed financial results. How the stock’s trades in the coming days depends on how investors react to the low-interest rate environment likely to continue hurting BAC net interest income.