On October 17, Bank of America (BAC.N) reported third-quarter profits that surpassed Wall Street’s expectations, driven by increased earnings from loan interest payments, robust performance in investment banking and trading. Despite a slowdown in the national economy and consumer spending on travel and goods, the bank noted resilience, albeit with caution about the uncertain macroeconomic outlook and subdued corporate deal activity.
CEO Brian Moynihan expressed optimism, foreseeing a soft landing with a trough expected in the middle of the next year. BofA’s profits climbed 10% to $7.8 billion, or 90 cents per share, surpassing analysts’ projections of 82 cents.
The bank’s shares saw a 3.11% increase in afternoon trading, outpacing the rise in the S&P 500 Banks Index, which tracks large-cap bank stocks. Consumer banking revenue grew by 6%, reaching $10.5 billion, with debit and credit card spending increasing by 3%. While Americans’ finances showed signs of strain, delinquencies remained low compared to historical levels.
BofA, along with other major lenders like JPMorgan Chase, Citigroup, and Wells Fargo, reassured investors about the resilience of U.S. consumers despite a slowdown in spending and rising delinquencies. The surge in net interest income (NII), fueled by Federal Reserve interest rate hikes, continued to bolster profits. BofA reported a 4% increase in NII to $14.4 billion, projecting a fourth-quarter NII of around $14 billion, marking a 9% full-year growth.
In the investment banking and trading segments, BofA witnessed notable performance. Investment banking fees rose by 2% to $1.2 billion, defying industry trends, while sales and trading revenue surged by 8% to $4.4 billion, its highest level in over a decade. The bank’s fixed-income instruments, currencies, and commodities (FICC) revenue grew by 6%, driven by improved trading in credit and mortgage products.
Despite a robust deals pipeline, uncertainty over the macroeconomic outlook has subdued investment banking activity. BofA maintained a flat headcount from the third quarter, allowing it to manage expenses, expected to decline by another $200 million in the fourth quarter to $15.6 billion.
The bank addressed concerns over unrealized losses on its securities portfolio, which grew to $131.6 billion in the third quarter, emphasizing that it is unlikely to sell securities at a loss. However, low-yielding assets have constrained the bank’s ability to utilize deposits for higher profits.
Overall, BofA reported a 3% increase in revenue, net of interest expense, reaching $25.2 billion.
