by Imani Moise in New York
Bank of America and Citigroup reported declining revenue on Wednesday as low interest rates and shrinking loan books continued to weigh down on the global megabanks.
Both lenders reported robust consumer spending after a sharp decline in the doldrums of the Covid-19 pandemic, but that has not yet translated to loan growth since more people are paying down balances before the banks can earn interest on them.
Credit card spending at BofA credit card surged 46 per cent in the second quarter, but loan balances in that business declined 15 per cent. BofA’s second-quarter revenue fell 4 per cent from the same period a year ago to $21.5bn, less than the $21.8bn expected by analysts, according to FactSet figures.
Citi, one of the largest credit card issuers in the US, reported a 12 per cent slide in total revenue, and end-of-period loans fell 3 per cent.
Revenue in its North American branded cards business — the growth engine for its global consumer bank heading into the pandemic — fell 12 per cent due to lower volumes.
Wells Fargo also reported earnings on Wednesday, posting double-digit declines in consumer and commercial loans. Chief executive Charles Scharf said “tepid loan demand” remained a headwind for the bank.
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Banks have struggled to increase lending revenue since the Federal Reserve cut interest rates to near zero and fiscal and monetary stimulus programmes reduced appetite for new loans.
However, the faster than expected US economic recovery has allowed them to release billions of dollars set aside for pandemic-induced loan losses that never came to fruition. The reserve releases helped banks report surging profits despite lower revenue and higher expenses in the second quarter.
Citi reported second-quarter profits of $6.2bn, or $2.85 per share, compared with $1.1bn, or 38 cents a share, a year earlier, after releasing $2.4bn in reserves. Analysts polled by FactSet had forecast earnings of $2.02 per share.
BofA released $2.2bn in reserves in the second quarter and reported earnings of $9.2bn, or $1.03 per share, compared with earnings of $3.5bn, or 37 cents per share in the same period last year. Analysts polled by FactSet were expecting earnings of 77 cents a share.
Additional reporting by Joshua Franklin