Rates, Tax Cut Help BofA Profit Rise 33% -- WSJ
July 17 2018 - 3:02AM
Dow Jones News
By Rachel Louise Ensign
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 17, 2018).
Rising interest rates and a massive tax cut carried Bank of
America Corp. to a 33% increase in second-quarter profit, making it
the latest big bank to benefit from strong economic conditions.
Quarterly profit at the Charlotte, N.C.-based bank, the second
largest in the U.S. by assets, rose to $6.784 billion from $5.106
billion a year earlier. Per share, earnings were 63 cents. Analysts
had expected 57 cents a share. Revenue fell to $22.609 billion from
$22.829 billion a year earlier, when the bank posted a one-time
gain related to the sale of a business. Without that gain, revenue
would have risen 3%.
The results marked another quarter during which Chief Executive
Brian Moynihan led the bank to solid earnings growth after several
rocky years after his tenure began in 2010. The bank's strong
results in recent quarters are another sign that many big banks are
back in growth mode a decade out from a financial crisis that
threatened their existence.
On Friday, JPMorgan Chase & Co. and Citigroup Inc. posted
double-digit profit increases for the second quarter. Wells Fargo
& Co. stumbled due to a number of one-time charges that dinged
earnings as well as a shrinking loan book and lower fees in several
of its main businesses.
Bank of America's earnings were "almost all you could have hoped
for," wrote Glenn Schorr, a bank analyst at Evercore ISI. Loans
grew by 2% from a year earlier, while deposits rose nearly 4%. The
lender also cut expenses by 5%. Trading revenue, excluding an
accounting adjustment, rose nearly 7% to $3.596 billion from $3.369
billion in the second quarter of last year.
One weak spot was investment-banking fees, which fell 7% from a
year earlier.
Bank of America shares rose 4.3% Monday, putting them in
positive territory for 2018.
Rising interest rates provided a major lift. Lenders like Bank
of America 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 seventh time in
three years.
Banks have been able to pocket most of the benefits from the
rate increases because customers aren't broadly demanding more
interest on their deposits. Overall, Bank of America paid a rate of
0.38% on U.S. interest-bearing deposits in the second quarter,
compared with 0.30% in the first quarter. In its retail banking
unit, the bank paid a minuscule 0.05%.
Banks are expected to eventually have to pay more interest to
keep depositors around, crimping the financial benefit of future
rate increases. Bank of America has managed to keep interest costs
in check better than many of its rivals, giving it more room to
maneuver should consumers begin to demand higher rates.
The recent tax-law changes also provided a major lift. The bank
paid $1.71 billion in income tax in the quarter, down 43% from
$3.015 billion in the same quarter last year, before the
legislation was passed.
The question is whether the good results help change investors'
sentiment about bank stocks. After a huge run-up after the 2016
election, investors have shown little enthusiasm for the industry's
shares this year. Since the start of 2018, the KBW Nasdaq bank
index is roughly flat and trails broader U.S. stock-market
benchmarks.
Investors have grown wary of lenders, analysts say, because of a
flattening of the yield curve: a narrowing of the difference in the
yields of shorter- and longer-term Treasurys.
A flatter yield curve can be bad for banks because they earn
less on loans and securities tied to longer-term Treasurys. The
narrowing also potentially signals problems ahead for the
economy.
"It will have an impact," Bank of America Chief Financial
Officer Paul Donofrio said of the yield curve on a Monday call with
reporters. However, like many lenders, the bank is more sensitive
to shorter-term rates than longer-term ones, which limits the pain
from the current curve, he said.
Investors' tepid feelings about bank stocks seemed to shift
somewhat on Monday, when shares of the four largest U.S. banks all
rose more than 2%.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
July 17, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Bank of America (NYSE:BAC)
Historical Stock Chart
From Aug 2024 to Sep 2024
Bank of America (NYSE:BAC)
Historical Stock Chart
From Sep 2023 to Sep 2024