Bank of America Reports Jump in Earnings -- 4th Update
April 18 2017 - 2:54PM
Dow Jones News
By Rachel Louise Ensign
Bank of America Corp. said its first-quarter profit beat
expectations as trading jumped and the lender started to see the
benefits of a long-awaited rise in interest rates.
Some analysts and shareholders cheered the results as a sign the
bank's turnaround plans are finally coming to fruition. But the
recent reversal in U.S. Treasury yields threatens the expected
future benefits from higher interest rates.
Quarterly profit at the Charlotte, N.C.-based bank rose 40% to
$4.86 billion from $3.47 billion a year ago. Per-share earnings of
41 cents exceeded the 35 cents expected by analysts.
Revenue was $22.25 billion, up from $20.79 billion a year ago.
On an adjusted basis, revenue of $22.45 billion compared with
analysts' expected figure of $21.61 billion. The results benefited
from the comparison to a particularly weak quarter one year
ago.
Shares added 0.1% to $22.84 in afternoon trading.
After heavy loan losses during the financial crisis and
debilitating legal fees in its wake, the bank has set out to
reshape itself as a stable lender focused on responsible growth.
Investors have recently cheered the approach: Through Monday, Bank
of America shares had risen about 61% over the past year, among the
best of the six largest U.S. banks, buoyed by the prospect of a
stronger economy and an election result that led to optimism about
regulatory and tax relief. For a period earlier this year, the
stock traded above its book value for the first time since the
financial crisis.
Some investors said the first-quarter results vindicated the
strategy taken by Chief Executive Brian Moynihan, a lawyer who took
the helm of the bank in 2010 as it struggled. "You're talking about
a guy who everyone said, 'How is this lawyer going to turn this
around?'" said Bank of America shareholder Bill Smead of Smead
Capital Management. He's "done exactly what we would have wanted
him to do."
The bank got a bigger boost from rising interest rates than
peers. The lender's net interest income increased 7.4% to $11.058
billion during the quarter from the prior quarter, surpassing the
lender's projection that the income metric would advance about $600
million.
Most consumer banks' lending businesses benefit from a Federal
Reserve rate increase. But Bank of America's balance sheet -- full
of deposits and mortgage securities -- is particularly
well-positioned.
But the bank warned that the recent decline in longer-term bond
yields could hamper future gains in net interest income. Banks
generally earn more when rates rise. While the Federal Reserve
raised a key short-term rate in March, the 10-year U.S. Treasury,
an important long-term interest rate, has fallen in the first weeks
of the second quarter and dropped further Tuesday.
The gains in net interest income will be "much more modest" next
quarter, Chief Financial Officer Paul Donofrio said. He pointed to
the bank's earlier disclosures that indicate that the Fed's
short-term rate increase would boost the metric by about $150
million.
Bank of America's gains from higher rates were lifted by the
fact that they didn't pay depositors much interest. The bank paid
0.09% on U.S. interest-bearing deposits, just 0.01 percentage point
above what it paid a year earlier and flat from the fourth
quarter.
Trading has started 2017 strong, compared with a weak 2016
start. Trading revenue at Bank of America, excluding an accounting
adjustment, rose 22.5% to $4.03 billion from $3.29 billion in the
first quarter of last year.
In addition to trading, profit was up in the bank's main
business units, including consumer banking, global wealth and
investment management, and global banking.
Loans, whose growth has started slowing down across the banking
industry, grew 0.6% from the year earlier and was flat from the
prior quarter. Loan growth reported in the bank's key lines of
business was stronger than that: for instance, loans in the
consumer bank increased 8.4% from a year earlier.
The broader slowdown in lending runs counter to the optimism
that Mr. Moynihan and other bank executives have said they're
hearing from customers. "People have to remember, it's a 2% growth
economy. So the loan demand is going to match that," Mr. Moynihan
said in April.
Quarterly noninterest expenses rose 0.2% to $14.848 billion from
$14.816 billion a year ago. Mr. Moynihan has made cost-cutting a
key tenet of his business strategy, and last year he 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.
Now investors are hoping to see the bank get approval for a
higher dividend or share repurchases in this coming round of the
Federal Reserve's stress tests.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
April 18, 2017 14:39 ET (18:39 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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