Bank of America Corp reported a smaller-than-expected 9% drop in quarterly profit on Monday, as rising interest rates helped offset a slump in investment banking.
The aggressive tightening of monetary policy by the United States Federal Reserve this year to combat inflation has increased the amount that banks can earn from charging interest on loans to consumers and businesses.
When compared to its main competitors, BofA has a larger base of consumer deposits, making it more sensitive to changes in interest rates.
Its net interest income increased by 24% in the third quarter, joining JPMorgan Chase & Co, Citigroup Inc, and Wells Fargo & Co in reporting higher net interest income.
“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% in October from the previous year, and they are also sitting on a mountain of deposits and repaying their credit cards, he added.
According to Refinitiv IBES data, BofA earned 81 cents per share excluding items for the quarter ended Sept. 30, beating the average analyst estimate of 77 cents per share.
Oppenheimer analyst Chris Kotowski called the earnings a “nice beat.” “The results show the value of having a strong branch network in the United States.”
Shares of BofA, which have fallen about 29% this year, rose nearly 6% to $33.59 as the market rallied.
“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 consumer business of the second-largest U.S. bank reported a 12% increase in revenue, aided by higher balances and an increase in interest rates, as well as a 9% increase in combined credit and debit card spend.
However, the bank increased its loan-loss reserves by $378 million as it braces for a slowing economy. This compares to a reserve release of $1.1 billion the previous year.
Its global wealth and investment management segment reported a 2% increase in revenue in the quarter as average loans and leases increased.
BofA’s investment banking fees fell 46% as growing concern about a slowing economy weighed on dealmaking. This was mirrored on Wall Street, where fees fell from last year’s highs as demand for public listings and buyouts dried up.
On a conference call with reporters, Chief Financial Officer Alastair Borthwick stated that the bank was satisfied with its current headcount and had no plans to cut jobs in the investment banking unit despite a decline in its underwriting business.
In the third quarter, the lender joined Wall Street rivals in hiring. JPMorgan’s headcount increased by 9% year on year, Citigroup’s increased by 8%, and Morgan Stanley’s increased by 11%. Wells Fargo defied the trend by cutting 6% of its workforce. more info
Borthwick stated that Bank of America’s leveraged loan losses were lower in the third quarter than in the second. Citigroup Inc wrote off $110 million in leveraged loans in the third quarter, compared to $126 million the previous quarter.
According to Dealogic data, Bank of America maintained its lead in global leveraged finance this year despite a quarter-quarter drop in deal volume to $1.4 trillion.
It was part of a consortium of lenders that took $700 million in losses to finance Citrix Systems Inc’s acquisition, as well as canceled efforts to sell debt that financed Apollo Global Management Inc’s acquisition of assets from Lumen Technologies Inc.
(Adapted from Reuters.com)