Bank of America CFO warns lower prices will hit interest income

Bank of America is the last lender to warn how falling interest rates will cause a major bank surplus engine to sputter at the end of the year.

The company said in April that growth in net interest income would slow from 6% last year to 3% in 201[ads1]9. However, this measure may slow further to about 1% this year if the Federal Reserve lowers interest rates twice, Finance Director Paul Donofrio said analysts Wednesday during a conference call.

"From here, if we were to assume stable prices, we believe that our NII for 2019 will now be about 2% compared to 2018," Donofrio said. "If prices follow the forward curve and the Fed is likely to be cut twice this year, starting this month, we think it would probably shave another 1 percent of the NII growth in 2019."

The global economic conditions have worsened in recent months during the US-China trade conflict, and the Fed has signaled that it is likely to cut the reference price later this month. Banks have rolled the shares, including Wells Fargo and J.P. Morgan Chase this week, both of whom have indicated that falling prices will affect net interest income. NII are the spread banks that earn by making loans with higher interest rates than what it pays depositors.

Both long and short-term rates have declined in recent months, and that hurts in three ways, explained Donofrio: so-called "floating rate" assets held by the bank will yield less; New bonds purchased will offer lower coupons, damage to the bank's portfolio, and mortgage customers can refinance at a lower interest rate, he said.

Shares in Bank of America rose 1% at 9:40 am when they had previously fallen more than 1% in premarket trading. The bank posted a record result that exceeded analysts' estimates of the strength of its divisions for retail banking and wealth management.

Helped matters, CEO Brian Moynihan indicated on the call that the bank could call back expenses if the revenue environment guaranteed it.