Bank of America Corp (BAC) Profit Misses, Tumbles 13% On Trading Revenue Slide, Build In Energy Reserves


Regarding BofA’s energy and loan exposure, BofA declared a total of $1.1bn in net charge-offs $down from $1.2b y/y, as the net charge-off ratio declined to 0.48% from 0.56%. Also, the provision for credit losses rose to $997m vs $810m in Q4, and up from $765m a year ago; BofA notes increased reserves in commercial portfolio due to energy sector exposure. As a result, net reserve release tumbled to just $71m vs $429m a year ago.

This is what BofA said:

  • Total reported and adjusted net charge-offs  were relatively flat versus 4Q15
  • Provision of $1.0B increased $0.2B from 4Q15, driven by lower net reserve release
  • 1Q16 increase in commercial reserves for Energy was offset by reserve releases in consumer

Finally, Bank of America made the disturbing revelation that 56% of its exposure its utilized exposure within energy is criticized.

  • Commercial net charge-offs decreased $35MM from 4Q15, driven primarily by non-Energy clientsAllowance for loans and leases increased from 4Q15, driven by an increase in Energy reserves of $0.5B to $1.0B, due primarily to increased allowance coverage for the higher risk sub-sectors (E&P and OFS)
    • Energy net charge-offs of $102MM increased $17MM
  • Utilized Energy exposure increased $0.5B from 4Q15, due primarily to increases in refining & marketing, partially offset by a decline in higher risk sub-sectors
    • Exposure of $7.7B to higher risk sub-sectors declined 7% and represents <1% of total loans and leases
      • 56% of this utilized exposure is criticized
  • Reservable criticized exposure increased from 4Q15, driven primarily by a $1.6B increase in Energy and $0.2B increase in Metals & Mining

The pain is not over yet for the banks which are only very slowly coming to grips with the full potential fallout.

This article is brought to you courtesy of Tyler Durden From Zero Hedge.

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