Bank of America reported a 48.5% drop in first-quarter net income on Wednesday, warning that it anticipated a recession because of the novel coronavirus and setting aside an additional $3.6 billion to cover potential losses.
The second-largest US bank by assets, a bellwether of the economy, said it analysed a number of recessionary scenarios in arriving at the view that economic output would drop significantly in the second quarter.
The bank’s analysis showed growth would recover slowly from the second quarter, “with negative growth rates in GDP extending well into 2021,” Chief Financial Officer Paul Donofrio said.
Bank of America’s shares fell 7% to $22.07.
Bank of America joined other major Wall Street banks in their dour outlook on the economy, providing new details about the impact sweeping lockdowns to curb the spread of the virus have had on the economy.
Other major lenders, including JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co, also bulked up reserves to absorb potential losses.
Including BofA’s reserve build of $3.6 billion, the top four US lenders have set aside a combined $14.2 billion in loan loss provisions. BofA’s total provisions is more than three times its actual first-quarter loan losses of $1.1 billion.
In recent days, amid signs that the spread of coronavirus may be peaking in some areas, governments have started examining when and how they should re-open the economy. Investors and economists are also debating what an eventual recovery would look like.