Bank of America tops earnings estimates on ‘resilient’ consumers

Bank of America reported better than expected third-quarter earnings as expanding profit margins from consumer lending helped offset sliding investment banking revenue.

“Our US consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” said chief executive Brian Moynihan in a statement accompanying the lender’s results on Monday.

Spending across the second-largest US bank’s debit and credit cards jumped 9 per cent, or $18bn, compared with the same period a year ago. A $68bn increase in consumer deposits helped offset falling balances from corporate customers, which dropped 7 per cent.

Like its Wall Street peers, Bank of America has benefited from the Federal Reserve’s campaign to cool down the economy with interest rate rises, which increase how much lenders can charge borrowers.

Net interest revenue, or the difference between how much a bank earns on its loan book and pays for deposits, surged 24 per cent to $13.8bn, fuelled by higher interest rates and a 12 per cent increase in loans.

Bank of America reported a net interest margin of 2.06 per cent, up from 1.68 per cent last year.

However, concerns about a possible recession — which are heightened by rising rates — have contributed to plunging revenue in other parts of the bank. Investment banking fees fell 46 per cent to $1.2bn as economic uncertainty kept deals on the back burner.

Earnings were also dented by a $378mn reserve build to account for potential bad loans.

Overall, the Charlotte, North Carolina-based bank reported a quarterly profit of $7.1bn, or 81 cents a share, down from $7.7bn, or 85 cents a share, a year earlier. Total revenue rose 8 per cent to $23.5bn.

Wall Street analysts had forecast earnings of 78 cents a share on $23.5bn in revenue, according to a FactSet poll.

Shares rose 2.9 per cent to $32.56 in pre-market trading.