BofA profits beat forecasts

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Bank of America reported an increase in third-quarter profits as the country’s second-largest bank continued to benefit from higher interest rates, and its traders delivered their best performance in a decade.

Profits climbed 10 per cent to $7.8bn in the quarter from a year ago, the bank said on Tuesday, as its revenues edged up 3 per cent. Cost cutting also helped boost the bank’s results. BofA has eliminated more than 4,000 positions in the past six months, bringing its total headcount down to just under 213,000 at the end of September.

The bank’s Wall Street businesses, notably its fixed-income and equities trading, proved a bright spot in a quarter marked by volatility across bond markets.

Revenues at its sales and trading business climbed 8 per cent to $4.4bn, including a 10 per cent jump in revenue from its equities business, which hit $1.7bn.

BofA’s quarterly results also showed that the bank has not had to raise payouts as much as rivals in order to keep deposits. BofA’s average interest bearing deposit account pays 2.1 per cent in annual interest. That is up from 0.35 per cent a year ago, but lower than JPMorgan at 2.53 per cent, and Citigroup at 3.4 per cent.

Despite those lower rates, BofA’s total deposits rose slightly over the past three months. The bank linked that jump in deposits to new accounts, and said it signed up 200,000 additional customers in the quarter.

BofA said it expected to make more money if interest rates stayed higher for longer than was currently expected. Last week, both JPMorgan and Wells Fargo warned that if interest rates remained elevated they would soon have to move interest paid on deposits more quickly than they had in the past year, eating into interest income.

Nonetheless, BofA has not been able to fully capitalise on high interest rates as well as some of its rivals in large part because of a decision made three years ago to pump $625bn in pandemic-era deposit inflows into the debt markets at a time when bonds traded at historically high prices and with low yields.

That decision has been a headache for BofA, not only because of the portfolio’s unrealised losses — which rose again this quarter to $131bn, up from $105bn three months ago — but because it has prevented the bank from reinvesting the cash locked up in those bonds into higher yielding investments.

The bank’s net interest yield, or what it makes in interest from its loans and investment and what it has to pay out to depositors and borrowers, shrank to 2.6 per cent from a high of 2.9 per cent six months ago.

Third-quarter results from the biggest US banks have proven more resilient than analysts expected given concerns that the US economy may be facing a downturn as interest rates stay higher for longer.

Spending by BofA’s credit card customers rose 3 per cent in the quarter compared with a year ago. Lending also increased, but only by 1 per cent.

In a sign that the bank is braced for some stress among its customers, BofA set aside $1.2bn for potential loan losses, up more than 20 per cent from the same period a year ago.

“Loan growth has been slower this quarter,” BofA’s chief financial officer Alastair Borthwick told analysts on a call following the earnings. “But at some point you are going to return to a more normal economy and that’s what we are seeing in the back half of the year.”

While BofA managed to increase earnings in the quarter, it did so at a slower pace than some rivals. Wells Fargo and JPMorgan last week reported a 68 per cent and 38 per cent jump in profits respectively. Earnings at Citigroup, which last month announced a big restructuring in a bid to remedy years of poor performance, reported a 2 per cent rise in third-quarter profits.

BofA shares trimmed early gains to close 0.3 per cent higher on Tuesday following the results.