Bank of America revenue tops expectations as lender benefits from higher interest rates

Earnings

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Bank Of America CEO Brian Moynihan is interviewed by Jack Otter during “Barron’s Roundtable” at Fox Business Network Studios on January 09, 2020 in New York City.
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Bank of America on Monday posted mixed second-quarter results that included the benefit from rising interest rates and about $425 million in expenses tied to regulatory matters.

Here are the numbers:

  • Earnings: 73 cents a share. Estimate according to Refinitiv was 75 cents a share
  • Revenue: $22.79 billion vs. $22.67 billion

Profit dropped 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses, the bank said in a statement. A year ago, the bank had a $1.6 billion benefit as borrowers proved more creditworthy than expected.

Revenue climbed 5.6% to $22.79 billion, edging out analysts’ expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth.

Shares of the lender vacillated between gains and losses of less than 1% in premarket trading.

“Solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital markets environment,” CEO Brian Moynihan said in the release.

“Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels. Loan growth continued across our franchise and our markets teams helped clients navigate significant volatility reflecting economic uncertainty.”

Bank of America, led by Moynihan since 2010, had enjoyed tailwinds as rising interest rates and a rebound in loan growth boosted income. But bank stocks got hammered this year amid concerns that high inflation will spark a recession, which would lead to higher loan defaults.

Noninterest expenses in the quarter rose 2% from a year earlier, as the firm cited about $425 million in costs tied to regulatory matters. Last week, U.S. regulators announced fines against the lender totaling $225 million over how it handled unemployment benefits during the pandemic.

Similar to peers at Morgan Stanley and JPMorgan Chase, Bank of America saw investment banking fees plunge 47% to $1.1 billion, just below the $1.24 billion StreetAccount estimate.

Furthermore, broad declines across financial assets have begun to show up in bank results in the quarter, with Wells Fargo saying that “market conditions” forced it to post a $576 million impairment on equity holdings.

JPMorgan said last week it had a $257 million writedown on bridge loans for leveraged buyout clients. For its part, Bank of America CFO Alastair Borthwick said last month that the bank will likely post a $150 million writedown on its buyout loans.

Bank of America shares have fallen 28% this year through Friday, worse than the 16% decline of the KBW Bank Index.

Last week, JPMorgan and Wells Fargo posted second-quarter profit declines as the banks set aside more funds for expected loan losses, while Morgan Stanley disappointed after a bigger-than-expected slowdown in investment banking. Citigroup was the sole firm to top expectations for revenue as it benefited from rising rates and strong trading results.

This story is developing. Please check back for updates.

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