Ting Shen/Bloomberg

It used to be a coarse quarter in some ways, maximum significantly at the investment price entrance, and the country’s second-largest financial institution by means of belongings posted a plunge in web pastime source of revenue and fourth-quarter income relative to a yr previous.

However Financial institution of The united states stated U.S. client spending — and borrowing — persisted to develop throughout the ultimate quarter of 2023, bolstering financial task and offsetting to some extent the hostile affects of lingering inflation and prime rates of interest.

Now, with inflation cooling to about part the extent of its 2023 top, and the Federal Reserve lately indicating it envisions charge cuts this yr, BofA stated the U.S. financial system may avert a recession and a powerful exertions marketplace may proceed to propel shoppers.

Over the last 4 many years, the Fed engineered 5 prior rate-tightening cycles and the U.S. financial system went right into a recession 4 of the ones instances. Lending task slowed and credit score losses piled up. This time round issues may move extra easily, BofA executives stated.

“The patrons nonetheless have a number of firepower,” Leader Monetary Officer Alastair Borthwick advised newshounds all the way through a convention name after the $3.2 trillion-asset financial institution reported fourth-quarter effects on Friday. He pointed to a resilient activity marketplace.

Employers added about 225,000 jobs per thirty days on moderate ultimate yr. The December jobless charge held at 3.7%, even with the prior month and close to a 50-year low. Wages larger 4.1% ultimate month from a yr previous, in step with the Hard work Division.

BofA stated its moderate client loans and rentals of $313 billion for the fourth quarter larger 4% from a yr previous. Mixed credit score and debit card spending of $229 billion amongst its consumers used to be up 3%.

On the identical time, must charges decline this yr, the Charlotte, North Carolina-based banking massive may see its deposits price degree off at the side of force on its web pastime source of revenue and final analysis.

“We really feel lovely just right in regards to the financial system,” Borthwick stated.  

Nonetheless, the megabank enters 2024 dealing with demanding situations.

Top rates of interest — which greater than doubled over 2022 and ultimate yr in different credit score classes — made it more and more tricky for some debtors to stay tempo with mortgage bills, pushing up credit score prices. BofA charged off $1.2 billion of loans within the fourth quarter, up greater than 70% from a yr previous. 

Total lending used to be necessarily flat, whilst deposit ranges declined and investment prices rose amid prime charges. Internet pastime source of revenue within the fourth quarter fell 5% from a yr previous to $13.9 billion. 

General income dropped 10% to $22 billion.

BofA posted web source of revenue of $3.1 billion, down 56% from a yr previous. It reported profits according to percentage of 35 cents, down from 85 cents.  

The profits decline used to be attributable largely to one-time hits that the financial institution had prior to now disclosed.

Previous this week, BofA warned it will take in a $1.6 billion payment tied to the trade’s transition clear of the London interbank presented charge, or Libor. It expects to earn that cash again through the years.

The financial institution, at the side of friends, used to be additionally topic to a distinct Federal Deposit Insurance coverage Corp. evaluation tied to the screw ups of Silicon Valley Financial institution and Signature Financial institution within the spring of 2023. The price totaled $2.1 billion sooner than taxes for BofA within the fourth quarter. 

“However even with the exception of the ones nonrecurring fees, pre-tax profits had been nonetheless down 14% from a yr in the past, in large part pushed by means of a 5% decline in web pastime source of revenue,” Moody’s Buyers Carrier analyst David Fanger stated.

Right through an profits name with analysts Friday, BofA Chairman and CEO Brian Moynihan stated rate of interest headwinds would proceed to blow into 2024 — and significant growth might rely on Fed charge discounts. However he expressed self belief in a slowing however nonetheless sturdy financial system this yr, strengthened by means of client spending.

Whilst charge-offs climbed, he stated credit score prices are “normalizing” after years of just about no losses, and when charges fall, mortgage call for may upward push and investment bills must decline, boosting web pastime source of revenue.

“They are operating, they are getting paid,” Moynihan stated of American shoppers. “They have got balances on accounts. They have got get entry to to credit score. They have got locked in just right charges on our mortgages. … We really feel it is just right.”