The second-largest U.S bank had serious concerns with the lower interest rates which could possibly compress growth and make matters somewhat uneasy. However, as of Wednesday it became known that the Bank of America Corp beat Wall Street in terms of quarterly profit estimates and not only that. BAC.N expanded its loan book due to earning more in advisory fees.
Slowing economic growth had been overcome by BofA’s biggest business, consumer banking, as it exhibited 3% upheaval in the lender’s shares and strongly resisted the wave of challenges imposed onto it. In addition, JPMorgan and Citigroup were sent signs regarding the U.S. household finances remaining stable and healthy.
As the Chief Executive Brian Moynihan pointed out, it is extremely important to emphasize those very things that can be controlled in a relatively easier fashion, moreover if the moderate pace of economic growth will be taken into consideration. BofA’s top executives tried to underline the possible risks of the lower interest rates as well as further cuts’ outcomes during the conference call which had been conducted in the presence of the analysts. Though, they seemed quite confident about the full-year interest income growth of 1% and its early completion.
Higher interest rates turned out to be beneficial for Wall Street’s marquee banks and this has been so since the year 2015. The tendency of such sort gave the banks a chance to increase their charging interest on loans, but perform so in the absence of increasing the deposit payouts. This, however, has not been the case in 2019 where markets have to face tension in terms of gradually weakening global economy and afflicted trading matters, essentially insisting on Federal Reserve to conduct double rate cut.
The bad news is that the Bank of America is most blatantly in peril when it comes to interest rate fluctuations among its peers. Mortgage securities with high rate-sensitivity and generally large deposit stock could have a say or two on this matter with certainty. Reportedly, the interest margin for the third quarter has not been the best for BofA. It showed a 4 basis-point decrease to 2.41%, although the latter was overshadowed by the success of growing overall loans, specifically by 5% and thus, the footprint of the lower rates was overcome.
Wall Street expectations plummeted due to the solid performance in terms of boosted total revenue, effective equities trading, and investment banking. The revenue from the latter, or more concretely from its fees, leaped up to 40% alongside rising consumer banking revenue by 3%. Impressive to say that BofA’s accomplishments in respect of equity trading business subdued the competing companies by 13%.
The pattern of successful statistics did not seem to be violated by the net interest income figures either. It is peaking at $12.34 billion presently and can be accounted for approximately half of the total revenue. If we consider a $2 billion impairment charge, the applicable net income for the common shareholders will manifest a decrease of 21% to $5.27 billion (56 cents per share). Although unaccompanied by the former, the earnings of the bank are 75 cents per share.
Progress is seen in the net interest expense revenue as well, where the figures have slightly risen to $22.96 billion. In any manner, the expectations of the analysts come close to the actual data where the former had their bet at 51 cents per share profit and the $22.79 billion revenue.