A Bank of America branch in Boston, on Oct. 14, 2022.Michael Dwyer/The Associated Press
Bank of America’s BAC-N second-quarter profit dropped as higher deposit costs pushed interest income lower, but beat analysts’ estimates due to strength in investment banking and trading businesses.
Shares of BofA climbed 2.4 per cent in premarket trading after the bank also forecast better-than-expected net interest income (NII) – the difference between what banks earn on loans and pay out on deposits – for the fourth quarter.
“The strength and earnings power of our leading consumer banking business is complemented by the growth and profitability of our global markets, global banking and wealth management businesses,” CEO Brian Moynihan said in a statement.
Investment banks have brought in more underwriting fees as capital markets resurged. A resilient U.S. economy has encouraged companies to raise capital by selling stocks and issuing bonds in recent months.
Mergers and acquisitions are also gaining momentum, boosting advisory fees for investment banks. BofA’s investment banking fees jumped 29 per cent to $1.6-billion in the second quarter, echoing results at peers.
But the unit faced tougher year-over-year comparisons versus its rivals. In the year-ago quarter, BofA’s investment banking fees grew 7 per cent, while JPMorgan Chase JPM-N and Citigroup C-N had reported a drop.
BofA’s underwriting income in the second quarter this year jumped 32 per cent, while fees from syndication surged 77 per cent.
Sales and trading revenue also jumped 7 per cent to $4.7-billion, growing year over year for the ninth consecutive quarter, helped by strong growth in equities.
“The interest rate environment has settled down a little bit, and obviously there’s a significant amount of geopolitical and election uncertainty around the world, but that tends to be an environment where clients reposition,” said CFO Alastair Borthwick.
“That tends to be a reasonably good environment for our sales and trading business.”
The second biggest U.S. lender earned $6.9-billion, or 83 cents per share, in the quarter ended June 30, 7 per cent lower than a year earlier, but above expectations of 80 cents per share, according to LSEG.
Its wealth and investment management unit also fetched 6 per cent higher revenue and saw 10 per cent growth in client balances to a record of more than $4-trillion.
The cost of preventing a deposit outflow has eroded banks’ gains from the rising interest they are charging borrowers.
Banks are shelling out more on deposits as interest rates are at their highest since 2007, which have boosted returns on bonds, making alternatives such as money market funds more attractive.
BofA’s NII fell 3 per cent to $13.7-billion in the second quarter. Provisions for credit losses rose to $1.5-billion from $1.1-billion a year earlier.
But the bank expects recovery in the second half of the year. It sees NII of $14.5-billion in the fourth quarter, above LSEG estimates of $14.4-billion, partly due to a boost from the repricing of mortgage and auto loans.
The forecast for increased NII solidifies earlier comments signalling that interest income would reach a trough in the fourth quarter, said Stephen Biggar, banking analyst at Argus Research.
Shares of the bank have gained 24.4 per cent so far this year, outperforming rivals JPMorgan and Wells Fargo WFC-N.