BAC Bank of America Corporation

By Christina Rexrode and Peter Rudegeair 

Bank of America Corp. said its quarterly earnings were dragged down by continued low interest rates, but a pickup in bond trading helped results beat expectations.

The Charlotte, N.C.-based lender reported a profit of $4.23 billion, or 36 cents a share. That compares with $5.13 billion, or 45 cents a share, in the same period of 2015. It was better than the 33 cents expected by analysts polled by Thomson Reuters, though analysts had been cutting their estimates throughout the year.

Revenue fell 7.1% to $20.4 billion from $21.96 billion a year ago. Still, it also beat expectations: Adjusted revenue was $20.6 billion, above the $20.41 billion expected by analysts. Shares rose about 3.5%, outpacing the gains of other bank shares.

The second largest bank in the U.S. by assets, Bank of America has been working to improve earnings, shareholder returns and the bank's stock price. That task has been made more difficult of late by long-term bond yields falling, something that hurts the bank's lending profitability and investments in mortgage securities.

Bank of America, run by Chairman and CEO Brian Moynihan, is particularly hurt by low interest rates because of its large base of U.S. deposits, and Mr. Moynihan has been criticized by some investors who think that waiting for rates to rise is too much a part of his business strategy.

Net interest income fell 12% to $9.21 billion from $10.46 billion a year ago, a sharper drop than seen by other big banks, and the U.K.'s vote last month to leave the European Union has dampened hopes that the Federal Reserve might raise interest rates this year.

But Mr. Moynihan said he isn't waiting around for rates to rise.

"The question is, can we grow earnings without rates improving?" he said on a call with analysts. "We believe we surely can."

To do that, Mr. Moynihan said, the bank will grow fee income, manage its risk and cut costs.

But the bank has already been cutting costs throughout his tenure. Expenses declined 3% from a year earlier, the lowest level since the fourth quarter of 2008, and Mr. Moynihan also announced a new cost-cutting goal: to get the bank's annual expense level to $53 billion by 2018. The bank's annual expenses in 2015 were $57 billion, down from $75 billion in 2014 after the bank slashed costs through a program called New BAC.

Much of the cost-cutting so far, though, has come from much-lower legal fees and far fewer crisis-era mortgages.

Mr. Moynihan and Chief Financial Officer Paul Donofrio highlighted other areas where the bank has saved money. An initiative called Simplify & Improve has cut down on the number of products the bank offers. In January, retention packages for some longtime financial advisers expired. Mr. Moynihan said last month that he planned to keep shrinking the trading unit, which already shed 10% of its workforce over the previous year.

Investments in technology are also designed to save money, with automated trading platforms allowing the bank to operate with fewer traders, and mobile banking allowing it to operate with fewer tellers. The bank cut more than 6,000 jobs over the year, or about 3% of its roster, and Mr. Donofrio said the layoffs came more from "highly paid managerial" positions.

Some bankers and traders have privately complained that the cost-cutting robs them of the resources they need to do their jobs. Steven Chubak, an analyst at Nomura, asked if the cost-cutting would hurt revenue.

Mr. Moynihan said the bank wouldn't allow cost savings without growing the business.

The trading business, for years a drag on big-bank earnings growth, this quarter proved a surprising standout. Excluding an accounting adjustment, Bank of America's trading revenue rose 12%. J.P. Morgan Chase & Co. last week reported a 23% increase in trading revenue, and Citigroup Inc. reported a 15% increase. The banks were helped by a miniboom in trading currencies and fixed-income products, spurred by the Brexit vote.

On the day after the Brexit vote, the bank logged its busiest day in equities trading since the financial crisis, helping mitigate an overall 7.6% decline in the business for the quarter from a year ago. Profit in the bank's major divisions increased, fueled by a 42% rise in global markets, which includes the trading division.

Profit in the consumer bank, by comparison, rose 3%. Mr. Donofrio said the U.S. is in an "ongoing" recovery, with businesses expanding and employment improving. But he gave no hint that the bank plans to loosen its lending standards. "In the consumer area we're focused on prime and super prime," he said, "and I don't see that changing."

Before Monday, Bank of America's shares have fallen 19% since the start of the year, compared with an 8% drop in the KBW Nasdaq index of bank stocks.

Write to Christina Rexrode at christina.rexrode@wsj.com and Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

July 18, 2016 15:59 ET (19:59 GMT)

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