Oct 16, 2019

Banks | Bank of America shares rise after posting higher-than-expected profit on retail operations

Hugh Son

Bank of America beat analysts’ estimates for profit and revenue as the firm’s consumer and advisory businesses offset a slump in trading.
The firm said net income excluding an impairment charge rose 4% to $7.5 billion, or an adjusted 75 cents a share. When including the $2.1 billion charge tied to the end of a partnership with First Data, net income fell to 56 cents a share, exceeding the 51 cent estimate of analysts surveyed by Refinitiv.
Shares of the bank rose 1.9% in early trading.
Three of the bank’s four main divisions posted gains in revenue, led by its global banking business, which posted an 8% increase to $5.2 billion on higher investment banking fees. Citing a boost from hiring more bankers in a push for middle-market deals, the bank posted a 27% increase in IB fees to $1.5 billion, exceeding the $1.27 billion estimate.
Consumer banking revenue rose 3% to $9.7 billion on increased interest income as the firm grew loans by 7% and deposits by 3%. Wealth management revenue climbed 2% to $4.9 billion on higher interest and asset management fees.
In the bank’s Wall Street trading division, revenue excluding accounting charges fell 2% to $3.88 billion. But the firm’s trading desks essentially matched expectations, producing $2.1 billion in fixed income revenue and $1.1 billion in equitis trading revenue.
“In a moderately growing economy, we focused on driving those things that are controllable,” CEO Brian Moynihan said in the release. “We made continued strong investments in our capabilities to serve customers, more relationship management teammates, more and refurbished branches and offices, and more digital capabilities, all while core expenses are flat.”
Bank of America, the second-biggest U.S. lender after J.P. Morgan Chase, is the “most asset sensitive” among the big banks, meaning that changes in interest rates impact it the most, according to Morgan Stanley analyst Betsy Graseck.
Management is likely to lower guidance for the net interest income it earns after the Federal Reserve cut rates twice in the quarter. The firm has already done that twice this year, in April and July, and each time the bank’s shares traded lower off the news.
Under Moynihan, the firm has steadily trimmed expenses while holding the line on or increasing revenue. (The bank has said that its expenses would total $53 billion for 2019.) That has made it a favorite holding of Warren Buffett’s Berkshire Hathaway, which has asked the Fed for permission to take his stake beyond the 10% level, according to Bloomberg.
The bank’s shares have climbed 21% this year before Wednesday’s earnings report, exceeding the 18% return of the KBW Bank Index.
Here’s what Wall Street expected:
Earnings: 51 cents a share, down 23% from a year earlier, according to Refinitiv.
Revenue: $22.79 billion, down 0.6% from a year earlier.
Net Interest Margin: 2.39%, according to FactSet
Trading Revenue: Fixed income $2.04 billion, Equities $1.09 billion
This is breaking news. Please check back for updates.

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