(Reuters) – Bank of America (BofA) reported on Friday a fall in fourth-quarter profit due to a charge of $3.7 billion (3.38 billion euros).
A charge intended to replenish a government deposit insurance fund and also linked to the gradual elimination of an index to which certain loans are backed.
The second-largest U.S. bank posted net profit of $3.1 billion, or 35 cents per share, for the three months ending Dec. 31, compared with $7.1 billion in the same period last year, or 85 cents per share.
Its quarterly net interest income (NII) – the difference between what banks earn on loans and what they pay for deposits – fell 5% to $13.9 billion, as the company spent more to hold customer deposits, while demand for loans remained weak due to high interest rates.
Several major banks are required to pay billions of dollars to replenish the Federal Deposit Insurance Corporation’s deposit insurance fund, which was gutted after the failure of Silicon Valley Bank and Signature Bank last year.
BofA took a pretax charge of $2.1 billion in the fourth quarter to replenish this fund.
The bank will also take a charge of about $1.6 billion in the fourth quarter for phasing out a Bloomberg benchmark interest rate, used in some commercial loan contracts. This amount should be added back to its NIR until 2026, BofA said.
After a bumper year in 2023, BofA expects net interest margin to bottom in the first half of this year and rise in the second half, Chief Executive Brian Moynihan told investors last month.
The Federal Reserve is expected to cut interest rates this year, following a rapid pace of tightening in 2023. If the rate cut puts pressure on the interest that banks charge on loans, it could translate into fewer deposits and an increase in demand for borrowing.
BofA also reported a drop in unrealized losses on securities held to maturity, driven by the recovery in bond markets. The bank posted unrealized losses of nearly $98 billion in the fourth quarter, compared to losses of $131.6 billion in the third quarter.
“High levels of capital and liquidity position us well to continue to deliver responsible growth in 2024,” said Brian Moynihan.
(Written by Mehnaz Yasmin in Bangalore, French version Gaëlle Sheehan, edited by Kate Entringer)
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