Bank of America reports profit jump on higher interest rates

Revenue grew more than 10%, to $25.2 billion in the second quarter.

Bank of America, one of the nation’s largest lenders, on Tuesday reported across-the-board strength in its latest quarter, with sales and profit that surpassed analysts’ expectations, like the three megabanks that reported their earnings last week.

Rising interest rates and expanded lending bolstered Bank of America’s profit in the second quarter, even as the company paid higher rates on deposits and increased its cushion against bad loans, which are rising compared with last year, but remained below pre-pandemic levels.

The Numbers

Bank of America reported a profit of $7.4 billion last quarter, up nearly 20% from the year before.

Revenue grew more than 10%, to $25.2 billion in the second quarter.

Bank of America holds nearly $2 trillion in customer deposits, but like most banks, it is seeing declines as customers move their money to accounts with higher returns: The bank’s average deposits dropped around 7% in the second quarter, compared with a year ago.

The bank also continued to make progress on a goal it laid out earlier this year: shrinking its head count through attrition. The bank, which had 288,000 employees in 2010, is now down to about 213,000 (excluding summer interns), roughly 4,000 fewer than a quarter ago. “That sets us up for a good trajectory on expense going forward,” said Alastair Borthwick, the bank’s chief financial officer.

Takeaways

Brian Moynihan, the bank’s CEO, called the quarter one of the strongest in the bank’s history.

“We continue to see a healthy U.S. economy that is growing at a slower pace, with a resilient job market,” he said. That echoed comments from his counterparts at other big banks, and comes as economists debate the likelihood of a so-called soft landing, in which inflation subsides without large job losses or a significant slowdown in economic growth. Customer spending on credit and debit cards rose 3%, to $226 billion, the bank said.

Notably, the lender’s investment-banking business rebounded in the second quarter, after a sharp drop in deal-making had cast a chill over the industry. The investment banking unit’s fees rose 7%, to $1.2 billion, and its trading revenue rose 3%, to $4.3 billion.

“That’s probably the most important highlight of the quarter, I think, in the global banking business,” Borthwick said. “We’ve got a little bit of pick up in equity capital markets, and that’s been a welcome sign for us.”

Context

America’s four largest banks — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — have now reported nearly $30 billion in profit for the second quarter, up more than 30% from a year ago. That stands in contrast to their smaller rivals, which have struggled recently. PNC Financial, which released earnings Tuesday, reported roughly flat profit and sales.

But large penalties for misdeeds remain a routine expense at the biggest banks. Last week, Bank of America was fined $150 million by two federal regulators for charging its customers improper fees and denying them promised sign-up bonuses. The bank reported $276 million in litigation costs last quarter, up from $89 million the previous quarter, “driven by agreements reached on consumer regulatory matters.”

What’s Next

Analysts will be closely watching results Wednesday from Goldman Sachs, which has struggled to recover from an ill-fated foray into consumer banking. They will also scrutinize smaller banks like Western Alliance as those lenders’ leaders try to shake off the effects of the three bank failures this year — First Republic, Signature Bank and Silicon Valley Bank — that threw the regional banking sector into turmoil.

Banks are bracing for a bill related to those failures. Bank of America said its expenses in the second half of this year could include a $1.9 billion accrual if the Federal Deposit Insurance Corp. finalizes an assessment on banks to cover the costs of protecting failed banks’ uninsured deposits.

This article originally appeared in The New York Times.

By Stacy Cowley