BofA profit beats estimates as it benefits from higher interest rates

April 18 (Reuters) – Bank of America Corp’s (BAC.N) first-quarter earnings beat analysts’ estimates as it collected large interest payments from customers, while its bond traders had their best quarter in a decade.

Rival banking giants JPMorgan Chase and Co (JPM.N) and Citigroup Inc (CN) also benefited from higher interest payments in the first quarter, while setting aside billions of dollars to prepare for an economy that deteriorates.

“Results were strong despite a challenging economic environment with market and banking sector volatility,” Bank of America Chief Financial Officer Alastair Borthwick said Tuesday.

Shares of the company fell slightly in choppy trading, erasing earlier gains.

The collapse of two U.S. lenders in March rattled the industry and heightened concerns about a looming recession. The crisis has hit bank stocks and prompted frightened depositors to shift their money to bigger institutions.

“Our research team continues to predict a shallow recession that will occur starting in the third quarter of 2023… if we look at our consumer behavior, payments per consumer continue to drive the US economy,” said the CEO of BofA, Brian Moynihan, reiterating an earlier view.

The second largest U.S. lender reported earnings of 94 cents in the three months ended March 31, against estimates of 82 cents per share, according to Refinitiv IBES data.

“Bank of America had a strong first quarter as rising interest rates continued to boost its net interest margin despite rising deposit costs,” said David Fanger, senior vice president at Moody’s. Investors Service.

“This, combined with strong sales and trading revenue and the seventh consecutive quarter of positive operating leverage, more than offset the negative impact of modest deposit outflows.”

Total deposits at BofA fell 1% to $1.91 trillion in the first quarter, compared to the fourth quarter, as customers who were unhappy with the deposit rates offered by lenders moved their money into money market funds to seek higher returns.

Reuters Charts

Fixed income, currency and commodity traders remained in high demand, generating $3.5 billion in revenue for BofA, up 27% from a year earlier.

Economists expect the U.S. economy to slow in the second half as the Federal Reserve raises interest rates to tame inflation, prompting BofA to build $124 million in reserves in the first quarter, versus a release of $362 million last year.

Still, combined debit and credit card spending held up, rising 6% in the quarter, according to BofA.

Consumer debit and credit spending remained robust given strong job and wage growth in the United States, Borthwick said, despite worries about a looming recession.

“Consumers are in great shape in terms of credit quality by any historical standard.”

Revenue from the company’s consumer banking unit rose 21% to $10.7 billion in the first quarter.

BofA’s net interest income (NII), which reflects how much the bank earns by charging customers interest, rose 25% to $14.4 billion in the quarter.

The bank said it expects the NII to decline 2% in the second quarter, compared to the first quarter.

Reuters Charts

Meanwhile, global M&A activity fell to its lowest level in more than a decade in the first quarter of 2023, hurt by rising interest rates, high inflation and recession fears. The trading slump has weighed on Wall Street investment banks in recent months, prompting thousands of job cuts.

BofA’s investment banking fees fell 20% to $1.2 billion in the quarter.

The company’s revenue, net of interest expense, rose 13% to $26.3 billion, beating estimates of $25.13 billion.

Reporting by Manya Saini and Niket Nishant in Bengaluru and Saeed Azhar in New York; Additional reporting by Siddarth S; Editing by Lananh Nguyen and Shounak Dasgupta

Our standards: The Thomson Reuters Trust Principles.

Manya Saini

Thomson Reuters

Manya Saini reports on prominent US publicly traded financial companies, including Wall Street’s largest banks, card companies, asset managers and fintechs. Also covers initial public offerings on US exchanges as well as news and regulatory developments in the cryptocurrency industry. Contact: 9958867986

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