Bank of America beats earnings estimates based on gains from higher interest rates

Bank of America beats earnings estimates based on gains from higher interest rates

From Mahnaz Yasmine and Minya Chinese

(Reuters) – Bank of America Corp. (NYSE) on Monday reported a less-than-expected 9 percent drop in quarterly profit, as interest income was boosted by a series of interest rate increases that helped offset weakness in its investment banking division.

The US Federal Reserve’s aggressive move to tighten monetary policy this year in the face of stubborn inflation has given banks more room to raise key lending rates, triggering a rebound in interest income, which has stagnated for years due to near-zero rates.

โ€œBank of America has benefited from the high interest rate environment in both returns on newly issued loans and depositor-only growth,โ€ said Siddharth Sinjay, chief investment officer at New York-based investment firm Ironhold Capital.

“This is a direct result of the higher interest rate offered by banks which appears to be very attractive compared to other risky assets.”

Bank of America has a large consumer deposit base, compared to its main competitors, which makes it more sensitive to any changes in interest rates. Net interest income jumped 24% in the third quarter.

JPMorgan Chase & Co. (NYSE:) City Group Inc (NYSE :), and Wells Fargo (NYSE ๐Ÿ™‚ & Co also saw a rise in net interest income in the same period.

Excluding items, Bank of America earned 81 cents per share for the quarter ended September 30, beating the average analyst estimate of 77 cents per share, according to Refinitiv IBES data.

Shares of Bank of America, which have fallen about 29% this year, were up 3.1% in trading before the bell.

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โ€œOur US consumer customers have remained resilient with strong, albeit slower-growing spending levels, and they continue to maintain high deposit amounts,โ€ said CEO Brian Moynihan.

The second largest U.S. bank consumer business reported a 12% jump in revenue, boosted by higher balances, higher interest rates and a 9% jump in combined credit and debit card spending.

However, the bank added $378 million to its loan loss reserves as it prepares for a weak economy. This compares with a reserve issuance of $1.1 billion in the previous year.

The global wealth management and investment segment recorded a 2% increase in revenue with average loan and rental growth in the quarter.

Rising fears of an economic slowdown have hampered global dealmaking, which has slipped from records set last year and has seen investment banking units struggle amid a lack of appetite for public listings and acquisitions. Bank of America investment banking fees fell 46 percent.

Chief Financial Officer Alistair Borthwick said in a media call that the bank is happy with the number of its employees at the moment and does not plan to cut jobs in the investment banking unit despite the slowdown in the underwriting business.

Borthwick said the bank’s leveraged loan losses were lower in the third quarter than in the second quarter.

Peer Citi also cut $110 million on leveraged loans in the third quarter, down from $126 million in the previous quarter.

Bank of America has managed to maintain its No. 1 position in global leveraged finance this year even as deal volume in the sector shrank by a quarter to $1.4 trillion, according to data from Dealogic.

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It was among the group of lenders that incurred $700 million in losses to fund the purchase of Citrix Systems Inc (NASDAQ:) as well as the cancellation of debt sale efforts that funded the Apollo Global Management Inc deal to buy assets from Lumen Technologies Inc.

Graph: Global Leveraged Finance Markets –

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