Bank Of America CEO Brian Moynihan is interviewed by Jack Otter during “Barron’s Roundtable” at the Fox Business Network Studios on January 9, 2020 in New York City.
John Lamparski | Getty Images
Bank of America said Monday that profit and revenue topped expectations on better-than-expected fixed-income trading and gains in fixed income, thanks to choppy markets and rising interest rates.
Here are the numbers:
- Earnings: 81 cents vs. 77 cents a share estimate for analysts surveyed by Refinitiv.
- Revenue: $24.61 billion vs. $23.57 billion estimate
Bank of America said in a release that third-quarter profit fell 8% to $7.1 billion, or 81 cents a share, as the company booked an $898 million provision for credit losses in the quarter. Income less interest costs increased to $24.61 billion.
The bank’s shares rose 3.1% in pre-market trading.
Bank of America, led by CEO Brian Moynihan, was to be one of the main beneficiaries of the Federal Reserve’s rate hike campaign. It plays out, as lenders including Bank of America, JPMorgan Chase and Wells Fargo produce more income as interest rates rise, allowing them to generate more profit from their core activities of taking deposits and making loans.
“Our US consumer clients remained resilient with strong but slower growth, spending levels and continued high deposit amounts,” Moynihan said in the release. “Across the bank, we grew lending by 12% in the past year as we provided the financial resources to support our customers.”
Net interest income at the bank rose 24% to $13.87 billion in the quarter, topping the StreetAccount estimate of $13.6 billion, thanks to higher interest rates in the quarter and an expanded loan book.
Net interest margin, a key measure of profitability for bank investors, rose to 2.06% from 1.86% in the second quarter of this year, beating analysts’ estimates of 2.00%.
Interest income rose 27% to $2.6 billion, beating estimates of $2.24 billion. That more than offset equity revenue, which fell 4% to $1.5 billion, missing estimates of $1.61 billion.
Like its Wall Street rivals, investment banking revenue showed steep declines, falling about 45% to $1.2 billion, beating estimates of $1.13 billion.
It is worth noting that the bank’s evolving allowance for credit losses showed that the company was beginning to take into account tougher economic prospects.
While Bank of America released $1.1 billion in reserves in the same period last year, in the third quarter the company had to build up reserves by $378 million. That, in addition to a 12% increase in net bad loan write-offs to $520 million in the quarter, accounted for the $898 million provision.
Analysts have said they want to see bank managers consider the possibility of an impending recession before investors return to the battered sector. Bank of America shares hit a new 52-week low last week and have fallen 29% this year through Friday, worse than the 26% decline of the KBW Bank Index.
Last week, JPMorgan and Wells Fargo topped third-quarter profit and revenue expectations by generating better-than-expected interest income. Citigroup also beat analysts’ estimates, and Morgan Stanley missed as choppy markets took a toll on its investment management business.
This story is in development. Please check back for updates.