Continue Avoiding Bank Of America As Its Profit Falls 52%
A couple weeks ago I showed you 3 Stocks To Avoid Like The Corona… And one of them was Bank of America.
Here’s what I said then about avoiding the stock.
Another stock to avoid is Bank of America…
Frankly, I could have chosen any bank/financial stock and thrown it in here as I’ll show you later… But I chose Bank of America (BAC) because of the huge issues its dealing with…
In April it reported a 45% drop in net profit for the 1st quarter of 2020.
This happened because credit costs rose to the highest levels since 2010.
Because the company created a $4.8 billion “provision” for bad debt in the 1st quarter.
When companies create a provision for bad debt like this, the amount is charged – subtracted – from that quarter’s earnings. Doing this lowered net income substantially.
It created this provision because it expects its clients to be unable to pay this money back.
Due to the mass unemployment going on right now.
And so on.
Fewer people paying their bills to companies, means those companies produce lower revenue and net income.
Bank of America created this provision because it expects far lower payments going forward than it got in the past.
And this is only the tip of the proverbial iceberg.
As I wrote in yesterday’s articles, banks and other financial institutions are in major trouble in the coming months after The Federal Reserve’s announcement last week.
I talk about that in the following articles.
This entire industry is getting hammered now… And it’s going to get worse the longer people are unemployed and can’t pay their bills.
Stay away from this entire industry for the time being… But especially Bank of America.
On 7/16/20 Bank of America released its 2nd quarter 2020 results and they were even worse than its horrible 1st quarter numbers.
In the 2nd quarter of 2020 Bank of America reported that its net income fell 52% in the year to year period from $7.35 billion in 2019 to $3.53 billion in 2020.
This largely due to continued lower revenue from people unable to pay their bills.
And, that it recorded another massive “provision” for bad debt.
This time it “set aside” another $5.12 billion that the bank now expects people not to pay back on its home, auto, credit card, and other loans.
This brings Bank of America’s total 1st half of 2020 provisions for bad debt to $9.88 billion.
How bad is this?
Bank of America earned in the full year 2019 a total net profit of $27.4 billion.
This is like cutting net profit last year by 36.1%.
In total so far as of the end of the 2nd quarter of 2020 Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo – the 4 largest banking groups in the US – combined have now made provisions for a total of $45 billion.
And these provisions for bad debt are after considering that banks got tens of billions in federal money to keep them alive and operating during these initial phases of the pandemic.
To put this into context, the 8 largest banks in the US took a total of $105 billion in TARP funds during the height of The Great Recession to avoid bankruptcy.
This is horrific.
And we’re still dealing with the negative effects of the coronavirus.
Haven’t even begun seeing evictions and foreclosures yet because of the CARES Act that protects people from being foreclosed and evicted until July 31st.
And new cases of the coronavirus are still exploding in the US and worldwide.
The longer this pandemic continues the more people will lose their jobs and get behind or completely stop paying their bills.
This crisis will continue to negatively affect banks for years to come depending on how long this crisis lasts.
Continue avoiding this entire sector for the reasons mentioned above.
But especially avoid Bank of America because its getting hurt worse than most other banks.
Click the links below to see the stocks we recommend helping Depression Proof Your Portfolio.
- 3 Stocks That Will Earn You High Returns In The Coming Depression.
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- 5 Reasons To Buy British American Tobacco
- 3 Stocks To Depression Proof Your Portfolio – Stock #1
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- 3 Stocks To Depression Proof Your Portfolio – Stock #3
- 4 Reasons To Buy Cummins To Depression Proof Your Portfolio
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.