Bank of America profit beats on boost from interest income, investment banking

 Bank of America beat Wall Street estimates for second-quarter profit on Tuesday as it earned more from customers’ loan payments, while its investment banking business and trading fared better than expected.

The bank reported a 7% rise in investment banking fees to $1.2 billion, driven by higher interest payments and leasing revenue, the company said. It also benefited from not booking mark-to-market losses on leveraged finance positions.

“We continue to see a healthy U.S. economy that is growing at a slower pace, with a resilient job market,” CEO Brian Moynihan said in a statement, echoing comments from his peers.

The bank reported a profit of 88 cents per share in the second quarter, beating analysts’ average expectations of 84 cents, according to IBES data from Refinitiv.

Net income applicable to common shareholders rose to $7.10 billion, or 88 cents per diluted share, for the three months ended June 30, compared with $5.93 billion, or 73 cents per diluted share, a year earlier, the second-largest U.S. bank reported on Tuesday. BofA Shares were down 0.5%.

The lender, alongside rivals JPMorgan Chase and Wells Fargo, earned a windfall from charging clients higher interest rates as the Federal Reserve raised borrowing costs to rein in stubborn inflation.

BofA’s net interest income (NII) rose 14% to $14.2 billion in the second quarter.

Global mergers and acquisitions (M&A) activity fell 36% year-on-year in the second quarter, but there has been optimism that the stock market’s recovery will restore confidence in dealmaking.

JPMorgan Chase’s chief financial officer, Jeremy Barnum, highlighted “green shoots” in trading and investment banking in the bank’s earnings last week, but said it was too early to call a trend.

Bank of America’s Chief Financial Officer Alastair Borthwick told a media briefing that there has been a little pickup in equity capital markets, which is helping the bank.

In a surprise bright spot, the bank’s sales and trading revenue outperformed expectations to post a 3% increase in revenue to $4.3 billion, including net debit valuation adjustment (DVA) losses of $102 million.

Revenue from the fixed income currencies and commodities (FICC) business rose 7% to $2.7 billion from a year earlier.

The financial health of consumers underpins BofA’s consumer banking unit, whose revenue rose 15% to $10.5 billion.

However, banks are grappling with stress in their commercial real estate lending businesses, particularly office loan portfolios, which are taking a hit from higher financing costs and a permanent shift towards remote work.

To account for a gloomy backdrop, provision for credit losses rose $602 million to $1.1 billion in the quarter.

Deposits at U.S. banks have become a focus for analysts and investors in recent months after regional bank failures in March prompted the biggest bout of banking turmoil since the 2008 financial crisis.

Average deposit balances fell $18 billion, or 1%, from the prior quarter to $1.9 trillion.

Revenue, net of interest expense, increased 11% to $25.2 billion in the quarter.

BofA’s CFO said the bank recorded $276 million for litigation expense, which was pushed higher in the quarter because of recent consumer fines.

Bank of America last week agreed to pay $250 million in fines and compensation to settle claims the bank systematically double-charged customers fees, withheld promised credit card perks, and opened accounts without customer authorization.

Source : Reuters