Bank of America tops estimates on better-than-expected bond trading, higher interest rates

Finance

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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 said Monday that profit and revenue topped expectations on better-than-expected fixed-income trading and gains in interest income, thanks to choppy markets and rising rates.

Here’s what the company reported compared with what analysts were expecting, based on Refinitiv data:

  • Earnings per share:  81 cents vs. 77 cents expected
  • Revenue: $24.61 billion adjusted vs. $23.57 billion expected

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 a $898 million provision for credit losses in the quarter. Revenue net of interest expense jumped to $24.61 billion, on a non-GAAP basis.

Shares of the bank rose 2.9% in premarket trading.

Bank of America, led by CEO Brian Moynihan, was supposed to be one of the main beneficiaries of the Federal Reserve’s rate-boosting campaign. That is playing out, as lenders including Bank of America, JPMorgan Chase and Wells Fargo are producing more revenue as rates rise, allowing them to generate more profit from their core activities of taking in deposits and making loans.

“Our U.S. consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” Moynihan said in the release. “Across the bank, we grew loans by 12% over the last year as we delivered the financial resources to support our clients.”

Net interest income at the bank jumped 24% to $13.87 billion in the quarter, topping the $13.6 billion StreetAccount estimate, thanks to higher rates in the quarter and an expanding book of loans.

Net interest margin, a key profitability metric for bank investors, widened to 2.06% from 1.86% in the second quarter of this year, edging out analysts’ estimate of 2.00%.

Fixed income trading revenue surged 27% to $2.6 billion, handily exceeding the $2.24 billion estimate. That more than offset equities revenue that dropped 4% to $1.5 billion, below the $1.61 billion estimate.

Like its Wall Street rivals, investment banking revenue posted steep declines, falling about 46% to $1.2 billion, slightly exceeding the $1.13 billion estimate.

Of note, the bank’s evolving provision for credit losses showed the company was beginning to factor in a more harsh economic outlook.

While Bank of America released $1.1 billion in reserves in the year-earlier period, in the third quarter the firm had to build reserves by $378 million. That, in addition to a 12% increase in net charge-offs for bad loans to $520 million in the quarter, accounted for the $898 million provision.

Analysts have said that they want to see bank executives factor in the possibility of an impending recession before investors return to the beaten-down 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 expectations for third-quarter profit and revenue 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 developing. Please check back for updates.

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