Oct 15 (Reuters) – Bank of America (BAC.N)’s third-quarter profit fell due to an increase in customer deposit holdings, but investment banking and trading led profits. It exceeded my expectations.
This profit is comparable to that of rivals JPMorgan Chase & Co. (JPM.N), Goldman Sachs (GS.N) and Citigroup (CN), which also benefited from improved trading conditions due to improved customer sentiment. received.
Investment banking fees rose 18% year over year to $1.4 billion, as increased customer confidence spurred increased debt and equity issuance.
“We believe customer deposit balances and asset quality are healthy and there are good opportunities for growth,” Chief Financial Officer Alastair Borthwick told reporters.
Regarding investment banking, Mr. Borthwick said, “We feel the outlook is very good going forward. We have a good pipeline.”
Chief Executive Officer Brian Moynihan said earnings were “strong”, citing growth in investment banking, asset management fees and sales and trading revenue. He expected the bank’s interest income to start improving after hitting a trough this quarter.
A resurgence in M&A activity has also pushed up BofA’s advisory fees, and the Federal Reserve’s interest rate cuts last month could further accelerate deals.
Shares were up about 2% in midday trading.
BofA’s underwriting revenue increased 39.7% in the quarter, and syndication fees increased 31%.
Mr. Moynihan last month said he expected investment banking profits to remain broadly stable.
“We expect equity upside to further decelerate as capital markets continue to drive earnings upside,” said Robert W. Baird analyst David George.
Sales and trading revenue rose 12% to $4.9 billion, the 10th consecutive quarter of year-over-year growth, as stocks rose 18% and fixed income, currencies and commodities rose 8%.
Stock trading became active due to the boom in the market. Stocks rose in the third quarter as investors speculated that the Federal Reserve would cut interest rates to stimulate economic activity.
Wealth and Investment Management revenue increased 8% to $5.8 billion and client balances increased 18% to $4.2 trillion, driven by higher market valuations and client flow.
“The bank seems to be saying things are looking up and all the challenges it’s faced over the past few years are easing,” said Dave Ellison, a portfolio manager at Hennessy Funds, which owns BofA stock. Ta.
NII is showing growth
BofA’s net interest income (NII) – the difference between the income a bank earns on loans and the amount it pays out on deposits – fell 3% from a year earlier to $14 billion in the third quarter. But it rose 2% from the second quarter, marking a turning point as the bank focuses on growing NII going forward, Borthwick said.
The bank expects NII to be more than $14.3 billion in the fourth quarter, executives said.
Borthwick said the bank reacted quickly to the Fed’s interest rate cuts and “this should do us pretty good” heading into 2025.
“We’re in a good position to grow from here,” Borthwick said.
Oppenheimer analyst Chris Kotofsky welcomed NII’s guidance.
He said in a note that this was “a step in the right direction and we are optimistic that the upward trend could continue.”
Banks are paying higher interest rates in a fierce competition for deposits to prevent customers from fleeing to money market funds and other lucrative alternatives.
BofA’s allowance for credit losses for the quarter was $1.5 billion, up from $1.2 billion in the year-ago period.
Rising interest rates are putting pressure on borrowers and increasing the risk of default, forcing banks to increase their reserves to cover these loan losses.
Still, U.S. consumer credit remains “pretty good” and loan delinquencies and defaults are flat, as expected, Borthwick said.
Net income for the second-largest U.S. bank fell to $6.9 billion, or 81 cents a share, from $7.8 billion, or 90 cents a share, a year earlier. Analysts on average expected BofA to earn 77 cents per share, according to estimates compiled by LSEG.
Reporting by Aras Kannagi Basil in Bengaluru and Nupur Anand in New York. Editing: Lanan Nguyen, Anil D’Silva, Mark Porter
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