Bank of America (BAC.N) beat Wall Street estimates for quarterly profit on Tuesday as it joined rivals in reaping windfalls from higher interest payments while benefiting from a better-than-expected performance of its investment banking and trading divisions. The second-largest U.S. bank reported a profit of 90 cents per share in the quarter, beating analysts’ average expectations of 82 cents per share. Excluding interest expense, revenue rose to $25.2 billion, slightly ahead of forecasts.
Rising interest rates have boosted banks’ loan income, pushing customers to invest more cash in higher-yielding deposits. In March, the collapse of two regional banks shook investor confidence, prompting depositors to move their money from troubled lenders to the most prominent institutions seen as having an implicit government backstop.
The Charlotte-based lender’s consumer banking business boosted profits by collecting hefty customer interest payments as they turned to BofA for safe investments. However, its wealth and investment management unit saw its profit squeezed by lower market valuations on securities holdings. BofA’s bond traders also had their best quarter in a decade as investors repositioned amid higher borrowing costs.
Net interest income rose 14% to $14.2 billion as the bank collected higher loan rates. But BofA’s total assets fell 3% in the quarter to $1.9 trillion as depositors pulled their funds out of low-yielding accounts, limiting its ability to redeploy those deposits for more interest payments.
BofA’s CFO Alastair Borthwick said the bank would maintain its guidance for 2023 for a total of between $56 and $62 billion in net interest income, excluding non-interest expenses. That is a reaffirmation of an outlook that has become more cautious following the collapse of several regional banks, the rout in global stock markets, and the ongoing trade war between the United States and China.
Bank of America was also boosted by recent weakness in the dollar, which has helped boost foreign currency earnings and sales at its retail and commercial businesses. Revenue in those businesses was up 7% from a year ago, and the company’s international business saw profits rise 14% on higher revenues from Mexico and Australia.
The bank’s share price was up about 4% in early trading. Shares have dropped about 11% this year, trailing a 20% slide in the KBW Bank Index. JPMorgan Chase and Citigroup posted third-quarter earnings that beat estimates on Tuesday as the Federal Reserve continues to raise rates to curb inflation. Goldman Sachs is due to report results on Wednesday. Stock futures slipped, and Treasury yields rose. Investors were also awaiting details on the Israeli-Hamas conflict that triggered the Gaza crisis.
