Bank of America Posts Mixed Results -- 3rd Update
January 13 2017 - 8:06AM
Dow Jones News
By Christina Rexrode and Peter Rudegeair
Bank of America Corp. reported its biggest annual profit in a
decade as its trading business benefited from the uncertainty
caused by Donald Trump's surprise election and the bank continued
to slash expenses.
But revenue for the latest quarter came in lower than analysts
had expected, pushing shares down 1.1% premarket.
The Charlotte, N.C.-based bank reported a profit for 2016 of
$17.91 billion, up from $15.84 billion a year earlier and the
biggest annual profit since 2006.
The bank also unveiled plans to increase its planned share
repurchases for the first half of this year, to $4.3 billion from
$2.5 billion.
Quarterly profit at the Charlotte, N.C.-based bank grew to $4.7
billion from $3.28 billion a year earlier. Per-share earnings rose
to 40 cents, better than the 38 cents expected by analysts.
Quarterly revenue improved 2.1% to $19.99 billion. On an
adjusted basis, revenue was $20.22 billion, less than the $20.85
billion analysts had been expecting.
Brian Moynihan, who this month marked his seven-year anniversary
as CEO, is enjoying a period of relative calm after years of heavy
loan losses and debilitating legal fees. Now, Mr. Moynihan is
working on improving shareholder returns. The bank's shares have
shot up by a third since Mr. Trump's election, more than the rally
across broader bank stocks.
Despite the rally, some investors point out the stock is still
cheaper than many other banks. It is still trading below book
value, for example, and the bank's return on equity is still below
its cost of capital.
Broader bank shares have rallied since the election as well,
though not as much as Bank of America, which is most dependent on
the health of the U.S. economy and the rising of U.S. interest
rates. Mr. Moynihan has said the Trump election has reshaped the
thinking of investors skeptical of bank stocks.
Annual revenue was essentially flat in consumer banking and down
in wealth management. Revenue rose in the banking and markets
divisions.
Trading revenue in the markets division, excluding an accounting
adjustment, rose 11% to $2.91 billion from $2.63 billion in the
fourth quarter of last year. For banks, the uncertainty caused by
the U.K.'s vote to leave the European Union, the guessing game
around whether the Federal Reserve will raise interest rates and
Mr. Trump's surprise election has been a boon for Wall Street,
creating three straight quarters of strong trading activity.
Stock trading revenue increased 7.5% to $948 million due to
strength in derivatives. Fixed-income trading revenue rose 12%,
less than the 15% rise Mr. Moynihan predicted at an investor
conference last month. The bank said markets for trading municipal
bonds, government bonds and other products tied to interest rates
was challenging in the latter half of the quarter.
Fourth-quarter investment-banking revenue fell 4% to $1.22
billion due to a decline in fees from deal making.
Bank of America's large base of U.S. deposits and rate-sensitive
mortgage securities makes it particularly dependent on an uptick in
interest rates, which remain near record lows even though the
Federal Reserve raised interest rates last month. The bank's net
interest income rose 6.3% to $10.29 billion, but paper losses on
its investment portfolios subtracted from its net worth.
Quarterly expenses declined 6.1% to $13.16 billion from $14.01
billion a year earlier as the bank continued to cut jobs and sell
or shutter branches.
Mr. Moynihan has made cost cutting a key tenet of his strategy,
sometimes noting how the bank could save both time and money by
switching more customers from cash and checks. Over the summer, Mr.
Moynihan promised to cut another $5 billion in annual expenses by
2018. To get to that level, the bank would need to turn in expenses
averaging $13.25 billion a quarter.
Write to Christina Rexrode at christina.rexrode@wsj.com and
Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
January 13, 2017 07:51 ET (12:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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