NEW YORK (AP) — Bank of America’s profits fell 8% in the third quarter as the bank set aside cash to cover potential loan losses.
It is the latest bank to start saving money for a possible recession, as Wall Street’s biggest banks have become increasingly gloomy on the american economy go into winter.
The nation’s second-largest bank said it earned $7.08 billion last quarter, or 81 cents per share, compared with earnings of $7.69 billion, or 86 cents per share, in the same period a year earlier.
The results were better than Wall Street’s forecast, which looked for BofA to earn 78 cents per share, according to FactSet.
BofA invested $378 million in its loan loss reserves this quarter – a level similar to Citigroup and Wells Fargo.
These reserves are designed to protect banks against possible bad debts when economies turn down.
During the pandemic, banks set aside tens of billions of dollars in these reserves, to release them a year later when economic activity resumed.
JPMorgan, the nation’s largest bank, set aside about $1 billion in its loan loss reserves last week, while Citigroup and Wells both put about $400 million in their reserves this quarter.
The bank saw its lending increase 12% from a year earlier, which the bank attributed to businesses taking out loans as well as consumers carrying credit card balances.
Wells Fargo, Citigroup and JPMorgan all reported double-digit increases in consumer credit card spending from a year earlier, raising concerns that consumers may need to borrow to keep up with inflation.
The bank also benefits from higher interest rates.
The bank’s net interest income rose 24% to $13.8 billion in the quarter.
BofA’s balance sheet tends to lean more toward short-term interest rates, which means the recent big Fed rate hikes are having a more immediate impact on the bank’s bottom line compared to its competitors.