New York: Bank of America Corp.’s expected bonanza from rising interest rates has stalled.
The lender, viewed as the most sensitive to rate changes among US banks, reported a surprise drop in net interest income in the second quarter, after a 7 per cent jump in the first three months of the year. Its two largest rivals — JPMorgan Chase & Co. and Wells Fargo & Co. — posted increases in the quarter.
Chief rxecutive dfficer Brian Moynihan has been trying to lower investors’ expectations in recent months after earlier predicting that income derived from lending and holding securities would soar once the Federal Reserve started hiking interest rates. Even with the decline in interest income, second-quarter profit climbed from a year earlier as credit quality improved and trading was stronger than expected.
Interest income was hurt by the sale of a UK credit-card business and stagnating long-term interest rates. Net interest margin, the difference between what a bank charges for loans and pays depositors, fell 5 basis points to 2.34 per cent, the Charlotte, North Carolina-based bank said Tuesday in a statement.
After the Fed raised interest rates in December, Bank of America reported more than $700 million in additional net interest income in the first quarter. It lowered guidance for the second quarter to a jump of $150 million (Dh551 million), even as the US central bank raised rates again in March. Two months ago, Moynihan told investors the increase in interest income would more likely be about $50 million, because the bank sold the UK unit more quickly than expected and yields have been stubbornly low on long-dated Treasury bonds.
Bank of America expects interest income to increase in the third quarter, assuming growth in loans and deposits and a rise in long-term interest rates, according to a presentation on its website.
Profit climbs
Investors have pushed up shares of Bank of America more than any other giant US lender since Donald Trump’s election, betting it’s poised for brighter days. The firm has gained 41 per cent since November 8, compared with the 28 per cent advance of the 24-company KBW Bank Index. The lender’s shares slipped 0.9 per cent to $23.80 at 7:06am in early trading in New York.
Net income rose 10 per cent to $5.27 billion, or 46 cents a share, from $4.78 billion, or 41 cents, a year earlier, according to the statement. The average estimate of 24 analysts surveyed by Bloomberg was for 43 cents a share.
Total revenue climbed 7 per cent to $22.8 billion from a year earlier, exceeding analysts’ expectations of $21.8 billion. Expenses rose 1.7 per cent to $13.7 billion, compared with estimates of $13.6 billion, largely tied to the costs of selling some data centers and increased severance pay.
The bank generated $11.2 billion in net interest income, using the adjusted figure analysts tend to prefer to show fully taxable equivalence. That was down from the first quarter and missed analysts’ estimates of $11.3 billion.
Fixed-income trading revenue declined 14 per cent to $2.11 billion, a smaller less than analysts expected, while equities trading rose 2.1 per cent to $1.1 billion.
— Bloomberg
