Bank of America Reports Higher Earnings -- Update
April 16 2018 - 8:30AM
Dow Jones News
By Rachel Louise Ensign
Bank of America Corp. said Monday that a boost from the U.S. tax
law and continued rising interest rates helped push first-quarter
profit higher, extending the string of better-than-expected results
from the nation's biggest banks.
Quarterly profit at the Charlotte, N.C.-based bank was $6.92
billion, compared with $5.34 billion a year ago. Per-share earnings
were 62 cents; analysts had expected 59 cents per share.
First-quarter revenue for the bank run by Chairman and Chief
Executive Brian Moynihan came in at $23.13 billion, up from $22.25
billion a year ago. Analysts had expected $23.06 billion.
Bank of America shares, up nearly 1% in 2018, rose about 0.9% to
$30.07 in premarket trading. After a huge run-up following the 2016
presidential election, bank stocks broadly have stalled so far in
2018.
This quarter is the first time investors have a chance to see
exactly how much the recent tax law is helping the bank's bottom
line. The banking industry was one of the biggest beneficiaries of
the lower corporate tax rate. While it led to big one-time charges
last quarter, the lower rate is starting to lift bank earnings this
quarter. Much of that is already in analysts' estimates for the
bank's future profits, however.
Bank of America said its effective tax rate fell by 9 percentage
points because of the bill. In the quarter, the bank paid $1.48
billion in income taxes, compared with $1.98 billion in the
year-ago quarter.
The tax benefits notwithstanding, the bank's underlying
performance also was strong. Income before taxes -- a good way to
look at the bank's performance without the tax boost -- increased
about 15% to $8.39 billion from $7.32 billion a year earlier.
Bank of America's return on equity hit 10.85% this quarter,
above the bank's theoretical 10% cost of capital. That is a
milestone for the bank, which has struggled to lift this key metric
in recent years. In the year-ago quarter, the metric stood at
8.09%
"Strong client activity, coupled with a growing global economy
and solid U.S. consumer activity, led to record quarterly
earnings," Mr. Moynihan said in a news release.
Rising interest rates also helped earnings. Higher rates are
typically good for banks because they turn a profit on the
difference between what they pay on deposits and the rate they
collect on loans. In the quarter, the Federal Reserve raised its
benchmark rate for a sixth time. Bank of America said its net
interest income rose about 5% from a year earlier.
Banks have been able to pocket most of the benefits from the
rate increases because customers aren't broadly demanding more
interest. The rate Bank of America paid on U.S. interest-bearing
deposits was 0.30%, only a slight rise from 0.27% in the prior
quarter. Still, deposits rose more than 4% from a year earlier.
Another bright spot for the bank's profit outlook: After a
number of quarters of disappointing trading revenue, wild price
swings for markets in the first quarter meant Wall Street's trading
desks had a pretty good quarter. Still, results weren't much better
than a year ago, which also was busy following the 2016 U.S.
presidential election.
Bank of America reported that trading revenue, excluding an
accounting adjustment, rose less than 1% to $4.05 billion from
$4.03 billion in the first quarter of last year. Equities revenue
increased 38%, while revenue from fixed income, currency and
commodities was down 13%.
JPMorgan Chase & Co. and Citigroup Inc., the other two big
Wall Street banks that reported results Friday, also showed rising
trading revenue.
Mr. Moynihan, now in his ninth year as CEO, has made cost
cutting a key tenet of his business strategy. In the first quarter,
expenses fell about 1% to $13.90 billion from $14.09 billion a year
ago. That helped push the bank's efficiency ratio, which measures
expenses as a percentage of revenue, below 60%, compared with 62.8%
a year ago.
Loan growth, which has slowed down across the banking industry
since the 2016 presidential election, rose 3% from a year earlier
at Bank of America.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
April 16, 2018 08:15 ET (12:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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