A Bank of America location in New York, on Jan. 10, 2017.Stephanie Keith/Reuters
Bank of America Corp BAC-N on Monday reported a smaller-than-expected 9 per cent drop in quarterly profit, as its interest income was bolstered by rising interest rates that offset a slump in investment banking.
The U.S. Federal Reserve’s aggressive move to tighten monetary policy this year to tame inflation has boosted the amount that banks can earn from charging interest on loans to consumers and businesses.
BofA holds a large base of consumer deposits, compared with its main rivals, making it more sensitive to any changes in interest rates.
Its net interest income jumped 24 per cent in the third quarter, joining JPMorgan Chase & Co Citigroup Inc, and Wells Fargo & Co, which also reported higher net interest income in the same period.
“Consumers remain resilient,” Bank of America Chief Executive Officer Brian Moynihan told analysts on a conference call.
“Consumers continue to spend at strong levels,” with spending up 10 per cent in October from the previous year, and they are also sitting on a mountain of deposits and repaying their credit cards, he added.
Excluding items, BofA earned 81 cents per share for the quarter ended Sept. 30, beating the average analyst estimate of 77 cents per share, according to Refinitiv IBES data.
The earnings were a “nice beat,” wrote Chris Kotowski, an analyst at Oppenheimer. “The results demonstrate the power of having a strong U.S. branch network.”
Shares of BofA, down about 29 per cent so far this year, rose nearly 6 per cent to $33.59 alongside a broader market rally.
“BofA benefited from a higher interest rate environment in both the yields on the newly issued loans and just the growth of number of depositors,” said Siddharth Singhai, chief investment officer of New York-based investment firm Ironhold Capital.
The second-largest U.S. bank’s consumer business reported a 12 per cent jump in revenue, helped by higher balances and a rise in interest rates and a 9 per cent jump in combined credit and debit card spend.
The bank, however, added $378-million to its loan-loss reserves as it braces for a weakening economy. That compares with a reserve release of $1.1-billion a year earlier.
Its global wealth and investment management segment reported a 2 per cent rise in revenue as average loans and leases grew in the quarter.
Investment banking fees at BofA fell 46 per cent as growing concern about an economic slowdown weighed on deal making. That echoed results across Wall Street, where fees retreated from last year’s records after demand dried up for public listings and buyouts.
Chief Financial Officer Alastair Borthwick said on a media call that the bank was satisfied with its head count for now and was not planning to cut jobs in the investment banking unit despite a downturn in its underwriting business.
The lender joins Wall Street rivals in adding staff in the third quarter. JPMorgan’s head count swelled 9 per cent versus the previous year, Citigroup’s rose 8 per cent and Morgan Stanley’s was up 11 per cent. Wells Fargo bucked the trend, trimming staff by 6 per cent.
Bank of America’s leveraged loan losses were lower in the third quarter than in the second, Borthwick said, without specifying an amount. Citigroup Inc wrote down $110-million on leveraged loans in the third quarter, down from $126-million in the previous quarter.
Bank of America managed to retain its top spot in global leveraged finance this year even as deal volumes in the sector shrank by a quarter to $1.4-trillion, according to data from Dealogic.
It was among the consortium of lenders that took $700-million of losses financing the buyout of Citrix Systems Inc as well as cancelled efforts to sell debt that financed Apollo Global management Inc’s deal to buy assets from Lumen Technologies Inc.