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BofA Counters Trading Slump With Gains in Consumer Banking

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BofA Counters Trading Slump With Gains in Consumer Banking

  • Lender’s second-quarter profit boosted by lower provisions
  • Trading revenue falls 10% as Wall Street-wide slump hits firm
Bank of America Delivers Record Second-Quarter Profit

Bank of America Corp.’s consumer bankers extended their winning streak for another three months.

Gains in the retail division helped drive overall profit to a record for a fifth consecutive quarter as mortgage activity surged and provisions for bad loans posted a surprise drop from the first quarter. The trading division, where revenue declined 10% in the second quarter, fell victim to the same slump its bigger rival JPMorgan Chase & Co. suffered during the period.

“We see solid consumer activity across the board, with spending by Bank of America consumers up 5% this quarter over the second quarter of last year,” Chief Executive Officer Brian Moynihan said Wednesday in a statement.

Bank of America shares climbed 1.1% to $29.31 at 9:45 a.m. in New York.

Healthy Borrowers

BofA defied expectations for a jump in bad-loan provisions

Source: Company filings

The biggest U.S. banks are benefiting from a solid job market, relatively strong economic growth and Federal Reserve interest-rate increases stretching back to late 2015. Despite profit blowouts in recent quarters, some investors are becoming more cautious on financial stocks amid speculation the Fed will cut rates this month. That’s prompted shares to trail the broader market.

Bank of America became the latest firm to dial down expectations for the lending business as the Federal Reserve seems poised to cut rates. Its net interest income will probably rise 1% this year if the Fed cuts rates twice in 2019, down from the 3% jump it expected in April, Chief Financial Officer Paul Donofrio said on a call with analysts Wednesday. JPMorgan and Wells Fargo & Co. also tamped down expectations for that metric this week.

BofA’s net interest income -- revenue from customers’ loan payments minus what the company pays depositors -- rose 3% to $12.2 billion in the second quarter, less than the $12.3 billion average estimate in a Bloomberg MODL survey. The bank joined JPMorgan, Wells Fargo and Citigroup Inc. in reporting sliding net interest margins compared with the previous quarter.

In Bank of America’s trading division, revenue dropped to $3.27 billion, slightly less than the average estimate of $3.32 billion. Fixed-income revenue fell 8% to $2.13 billion, while equity-trading revenue slid 13% to $1.15 billion. Donofrio said on a call with reporters that the declines weren’t due to bad bets, as the bank had no days of trading losses in the quarter.

The lender announced last month it would return as much as $37 billion to shareholders over the next four quarters by raising its dividend by 20% and boosting stock buybacks.

Other key results:

  • The efficiency ratio, a measure of profitability, improved to 57.5% from 58.7% a year earlier. Operating leverage was positive for the 18th consecutive quarter.
  • Debt-underwriting fees of $651 million were less than the $786 million expected by analysts surveyed by Bloomberg.
  • Net income rose 8% to $7.35 billion as the bank generated a 12% return on equity.
  • Donofrio emphasized that the firm has been improving its market share in investment banking. The bank has been tapping the brakes on risk, which was spurring frustration among some bankers.
  • The CFO also cautioned that clients probably need more confidence in global growth and an easing of trade tensions before markets activity rebounds.
(Updates with NII outlook in sixth paragraph.)