Bank of America Stock Drops 3% Despite Q2 Earnings Beat

The North Carolina-based bank put aside more than $5 billion to cover potential loan losses.
Anthony RussoJul 16,2020,19:00

The stock in Bank of America Corp. (NYSE: BAC) slipped nearly 3% to $23.89 per share by midday Thursday after reporting better than anticipated earnings for the second quarter.

The North Carolina-based bank said that it generated revenues of $22.3 billion on earnings of $3.5 billion, or 37 cents per share.

"In the most tumultuous period since the Great Depression, we delivered for our clients, our employees, our communities, and our shareholders," Brian Moynihan, the chief executive officer of BAC said in a statement today.

He added, “Strong capital markets results provided an important counterbalance to the COVID-19-related impacts on our consumer business, and our industry-leading digital capabilities allowed us to support clients amid difficult working conditions.”

While both results beat estimates of earnings of 27 cents per share on revenues of $22 billion, its profit still plunged more than 50% from the same period in 2019. The firm with 4,300 branches across the U.S. set aside more than $5 billion to cover potential loan losses, while lower interest rates reduced interest income by 11%.

“When both long term and short term interest rates are at their historical lows as they are today. That spread is lower, and we make less money,” Paul Donofrio, the chief financial officer of BAC said.

However, the bank isn’t alone after watching its stock fall after beating estimates, as Citigroup Inc., (NYSE: C) did the same earlier this week, but has now recovered from the fall anyhow.

It also didn’t help BAC’s cause that U.S. markets were down after Asian benchmarks took big hits on China’s retail sales falling short of projections. Intraday, the Dow Jones dropped 84 points, the S&P 500 lost 18 points and the Nasdaq Composite tumbled more than 150 points.

“No matter how much stimulus and fiscal sugar you try to entice consumers with, they will not leave their apartment and go on a spending spree until they feel confident the landscape is virus-free,” Chief global market strategist Stephen Innes said in a report.

As for BAC, Donofrio told analysts in a conference call that he was encouraged by recent customer activity. “We’re seeing early signs of cautious optimism,” he said. Shares of BAC are down 32% year-to-date.