Bank of America leads Q3 profit

Bank of America has reported strong third-quarter earnings that exceeded expectations, particularly driven by robust interest income. Here are the key highlights of their report:

  • Earnings Per Share (EPS): Bank of America’s EPS for the third quarter was 90 cents, surpassing the expected estimate of 82 cents from LSEG (formerly known as Refinitiv).
  • Revenue: The bank reported total revenue of $25.32 billion for the quarter, which exceeded the expected estimate of $25.14 billion.
  • Profit Growth: The bank’s profit increased by 10% to $7.8 billion, or 90 cents per share, compared to $7.1 billion, or 81 cents per share, in the same period the previous year.
  • Interest Income: Bank of America’s interest income rose by 4% to $14.4 billion, which was approximately $300 million more than what analysts had anticipated. This increase was attributed to higher interest rates and loan growth.
  • Client Growth: Despite economic pressures, the bank continued to add clients. Although consumer banking deposits decreased by 8% in the quarter, the segment saw a 6% increase in revenue, reaching $10.5 billion.

Bank of America’s CEO, Brian Moynihan, emphasised the bank’s ability to attract clients in a slowing economy while pointing out that U.S. consumer spending was still ahead of the previous year.

The bank was expected to benefit from higher interest rates in 2023. However, Bank of America’s stock performance has lagged behind its peers due to its exposure to low-yielding, long-dated securities acquired during the pandemic. As interest rates have risen, these securities lost value, making Bank of America more sensitive to interest rate movements compared to other major banks.

This situation has put pressure on the bank’s net interest income (NII), which is a key metric closely watched by analysts. The bank had more than $100 billion in paper losses on bonds by mid-year. In July, Bank of America’s CFO, Alistair Borthwick, reaffirmed previous guidance that NII would be approximately $57 billion for the full year 2023.

Despite the stock’s underperformance throughout the year, Bank of America’s shares were up about 1% in premarket trading on the day of the earnings release. It’s worth noting that the bank’s stock performance has trailed behind that of its rival JPMorgan Chase, which saw a 10% gain in its shares during the same period.

Last week, other major banks such as JPMorgan, Wells Fargo, and Citigroup also reported third-quarter profits that exceeded expectations, supported by lower-than-expected credit costs. Morgan Stanley was expected to release its earnings results on Wednesday.

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