Bank of America has provided further evidence it is recovering from its protracted post-crisis malaise after it brushed aside a $2.9bn tax-related charge and a $292m loss suspected to be from the Steinhoff scandal to generate its highest annual profit since 2006.
The second-biggest US bank by assets, which for years was beset by legal and regulatory difficulties, on Wednesday posted revenue improvements at its consumer banking, wealth management and global banking businesses. Global markets, hit by a 13 per cent drop in fixed income, currencies and commodities revenues, was its only division to sustain a decline in the fourth quarter.
The financial woes of the scandal-hit South African retailer Steinhoff International also dented profits. The bank said its earnings were hit by a “single-name non-US commercial charge-off”, totalling $292m. It did not name the client, although rivals including JPMorgan Chase and Citigroup have taken similar losses from Steinhoff.
However, the Federal Reserve’s interest rate rises helped the bank overcome those setbacks. Bank of America is seen as among the best-placed US banks to benefit from higher rates because of its mix of loans and liabilities. Net interest income rose $1.2bn, or 11 per cent, from a year ago.
The bank should also be a big beneficiary of the US corporate tax cuts, even though the reforms forced it to take an immediate write-down. Much of the charge is a legacy of the losses it racked up during the crisis. The tax code allows companies to deduct past losses from future profits. The tax law that took effect at the start of the year reduces the value of that benefit, triggering a $1.9bn write-down at BofA. Changes to the taxation of energy investments resulted in a further $900m hit.
The charges pushed net income for the fourth quarter down from $4.5bn a year ago to $2.4bn. For the year as a whole, however, net income rose from $17.8bn in 2016 to $18.2bn.
Investors looked past the accounting red ink, as shares in Bank of America ticked up 0.4 per cent in pre-market trading. The shares performed the best among S&P 500 banks last year, rallying 35 per cent.
Article from the ‘Financial Times’