BofA profit beats estimates as it cashes in on higher interest rates By Reuters

By Manya Saini and Saeed Azhar

(Reuters) – Bank of America Corp.’s first-quarter profit beat analyst estimates as it collected huge interest payments from customers, while bond traders notched their best quarter in a decade.

Rival banking giants JPMorgan Chase (NYSE:) & Co Citigroup Inc (NYSE:) also reaped a windfall from higher interest payments in the first quarter, while setting aside billions of dollars to prepare for a downturn in the economy.

“The results were strong despite the challenging economic environment with market and banking sector volatility,” said Alistair Borthwick, CFO of Bank of America (NYSE: NYSE).

Shares of the company fell slightly in volatile trading, erasing earlier gains.

The collapse of US lenders in March shook the industry and exacerbated concerns about a looming recession. The crisis hit bank stocks and prompted panicked depositors to move their money to larger institutions.

“Our research team continues to project a shallow recession beginning in the third quarter of 2023… If we look at our consumer behavior, consumer payments continue to drive the US economy,” said Brian Moynihan, CEO of Bank of America. previous point of view.

The second-largest US bank posted a profit of 94 cents in the three months ended March 31, compared to an estimate of 82 cents per share, according to IBES data from Refinitiv.

“Bank of America had a strong first quarter as higher interest rates continued to boost net interest margins despite higher deposit costs,” said David Fanger, senior vice president at Moody’s (NYSE: Investors Service).

“This, along with strong sales and trading revenue and the seventh consecutive quarter of positive operating leverage, more than offset the negative impact of modest deposit outflows.”

Total deposits at Bank of America fell 1% to $1.91 trillion in the first quarter, compared to the fourth quarter, as customers dissatisfied with the deposit rates offered by lenders turned their money into money market funds to pursue greater returns.

Fixed income, currency and commodity traders remained in high demand, generating $3.5 billion in revenue for Bank of America, up 27% from a year earlier.

Economists expect the US economy to slow in the second half of the year as the Federal Reserve raises interest rates to tame inflation, prompting Bank of America to build reserves of $124 million in the first quarter, compared to issuing $362 million last year.

However, combined debit and credit card spending was resilient, rising 6% in the quarter, according to BofA.

Borthwick said consumer spending and credit remain strong given strong employment and wage growth in the United States, despite concerns about a looming recession.

“Consumers are doing well in terms of credit quality by any historical standard.”

Revenue from the company’s retail banking unit rose 21% to $10.7 billion in the first quarter.

Bank of America’s net interest income (NII), which reflects how much money the bank makes from charging customers interest, rose 25% to $14.4 billion in the quarter.

The bank said it expects the national insurance index to decline 2% in the second quarter compared to the first quarter.

Meanwhile, global mergers and acquisitions activity contracted to its lowest level in more than a decade in the first quarter of 2023, dragged down by rising interest rates, rising inflation and recession fears. The slump in deal-making has weighed heavily on Wall Street investment banks in recent months, cutting thousands of jobs.

Bank of America investment banking fees fell 20% to $1.2 billion in the first quarter.

The company’s revenue, net of interest expense, rose 13% to $26.3 billion, beating estimates of $25.13 billion.