Bank of America, America’s second largest investment bank reported better than expected second earnings Monday following three of the largest U.S. lenders, JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) reporting mixed results last week. $BAC posted earnings down 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses. Revenue rose 5.6% to $22.79 billion as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth.
Bank of America Corporation NYSE: BAC Report Earnings Before Open Monday
$0.78 Beat $0.75 EPS Forecast and $22.79 Billion Beat $22.67 Billion Forecast in Revenue
Bank of America Q2 Earnings
- Q2 2022 earnings release: before the opening bell; conference call: 9 a.m.
- Bank of America is the second-largest US bank.
- Earnings per share: 78 cents adjusted vs. 75 cents a share expected
- Revenue: $22.79 billion vs. $22.67 billion expected
BAC profit fell 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses. Like other banks this is a flip from last year. A year ago, the bank had a $1.6 billion benefit as borrowers proved more creditworthy than expected. Inflation and rising rates have changed all that. Excluding the impact of the regulatory expenses, the bank earned 78 cents a share, which was higher than analysts had predicted.
Revenue rose 5.6% to $22.79 billion, ahead of analysts’ expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth. That figure could climb by $900 million or $1 billion in the third quarter and by at least that much in the fourth quarter, CFO Alastair Borthwick told analysts Monday during a conference call.
- Investment banking fees plunged 47% to $1.1 billion, just below the $1.24 billion StreetAccount estimate.
- Fixed income trading revenue jumped 19% to $2.3 billion
- Equities revenue rose 2% to $1.7 billion, both essentially matching analysts’ expectations.
- Noninterest expenses in the quarter rose 2% from a year earlier, as the firm cited about $425 million in costs tied to regulatory matters. Roughly half of that figure was tied to fines announced last week totaling $225 million over how the bank handled unemployment benefits during the pandemic; the rest has to do with an industrywide probe into trading personnel using messaging apps.
““Solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital markets environment,” Bank of America Chief Executive Brian Moynihan said in a statement. “Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels. Loan growth continued across our franchise and our markets teams helped clients navigate significant volatility reflecting economic uncertainty.”
Rising interest rates has a positive effect on Bank of America earnings.
In Q2 net interest income surged 22% to $12.4 billion on rising interest rates and loan growth. That figure could climb by $900 million or $1 billion in the third quarter and by at least that much in the fourth quarter, CFO Alastair Borthwick told analysts Monday during a conference call.
Lending was a bright spot for Bank of America as loan balances grew from last quarter.
- Combined credit and debit card spend for the bank rose 11% to $220.5 billion over the prior quarter. That figure was also up 10% year over year.
- BofA’s total loans and leases, excluding those from the government’s Paycheck Protection Program, grew 14% year-over-year. That figure was also up 4% from the immediately preceding quarter.
Concerns for the bank is that higher rates cut off demand. Last week U.S. Treasuries compressed the 2s10s spread by 18 bps to -20 bps, the deepest inversion since late 2000, which reflects expectations for slower growth. This was up from inversion of the 2s10s spread ending last week the week at -2 bps. No surprises here with rampant inflation.
- 2-yr: +1 bp to 3.13% (+1 bp for the week)
- 3-yr: -1 bp to 3.14% (-1 bp for the week)
- 5-yr: -1 bp to 3.05% (-9 bps for the week)
- 10-yr: -3 bps to 2.93% (-17 bps for the week)
- 30-yr: -1 bp to 3.09% (-18 bps for the week)
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.
The bank rally had 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.
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