Bank of America Loan Balances Growing with Higher Interest Rates Boosting Profits

Bank of America, America’s second largest investment bank reported better than expected fourth earnings Wednesday following three of the largest U.S. lenders, JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) reporting mixed results last week. $BAC posted its second straight quarter of year-over-year positive operating leverage. Rising interest rates has a positive effect on Bank of America earnings and with the 10-year yield rising as the Fed signals tightening.

Bank of America Mortgage

Bank of America Corporation NYSE: BAC Report Earnings Before Open Wednesday

$0.82 Beat $0.76 EPS Forecast and $22.1 Billion Missed $22.9 Billion Forecast in Revenue

Bank of America Q4 Earnings Preview

  • Q4 2021 earnings release: before the opening bell; conference call: 9 a.m.
  • Bank of America is the second-largest US bank.

BAC Revenue of $22.1 billion was slightly lower than analysts’ forecasts but was 10% higher than the fourth quarter of 2020. It was forecast to rise to $22.9 billion from $20.2 billion the year before.

Profits at the bank increased by 28% from the year-ago quarter, amounting to $7 billion, or 82 cents a share, beating the $0.76 from $0.59 by 20 analysts in the same quarter of the previous year. For the full year, Bank of America’s results saw record profits of $32 billion, up from $17.9 billion in 2021.

Revenue and earnings were expected to rise across BAC’s Consumer Banking, Global Banking, and Global Wealth & Investment Management segments. Declines were seen in its Global Markets division. Expenses have been the bane of the other banks and on that non-interest expenses for 2022, Bank of America said, would include around $400 million in personnel costs this quarter, but would remain ‘approximate’ to the levels seen in 2021.

Expected net income from each segment versus the same period last year:

  • Consumer Banking: $3.1 billion v forecast $3.03 billion (vs $2.59 billion)
  • Global Banking: $2.7 billion v forecast $1.96 billion (vs $1.68 billion)
  • Global Markets: $669 billion v forecast $761.8 million (vs $791.0 million)
  • Global Wealth & Investment Management: $1.2 billion v forecast $1.2 $1.11 billion (vs $834.0 million)

“Our fourth-quarter results were driven by strong organic growth, record levels of digital engagement, and an improving economy,” Bank of America Chief Executive Brian Moynihan said in a statement. “We grew loans by $51 billion and added $100 billion of deposits during the quarter, further strengthening our position as the leader in retail deposits.”

Rising interest rates has a positive effect on Bank of America earnings.

Lending was a bright spot for Bank of America as loan balances grew 6% to $979 billion from last year’s fourth quarter and now stand near pre-pandemic levels. Bank of America, deposits grew 15% year over year.

  • Net interest income rose 11% to $11.4 billion
  • Total loans were up 8%. to $979 billion.

The US 10-year yield had the largest first day jump since 2009 on the first day back in 2022 and hit 1.80%. 10-year notes have sold-off 0.45 per cent since mid-December, generating a loss of over 4 per cent. US real yields have weakened 0.22 per cent in that time. No surprises here with rampant inflation. This move implies half of the weakness in nominal bonds is related to rising inflation. The benefit of a +100 basis points parallel shift up in interest rates is approximately $10.5 billion for BAC. Bank of America generated $31.5 billion in net interest income in the first nine months of 2021.

 Big Banks Kick Off First Quarter 2022 Earnings Season

The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks’ profits thereto.  

Overall, analysts and banks are looking for a strong earnings season, partly in response to the improving economy and the vaccine rollout but predominantly from the rise in interest rates with the Fed looking to raise rates. Banks will benefit from rising rates, provided that they don’t go up too rapidly and hurt demand for mortgages, credit cards and other loans.

Bank Releases Q4 2021

Source: BAC

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