BofA posts record profit as higher rates fuel consumer unit

BANK OF AMERICA reported a profit of $7.31 billion in the first quarter. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI/GETTY IMAGES
BANK OF AMERICA reported a profit of $7.31 billion in the first quarter. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI/GETTY IMAGES

NEW YORK – Bank of America Corp.’s consumer bankers outdid their colleagues in trading for the second quarter in a row as the company leaned on retail lending to generate record profit.

Net interest income at the consumer unit – revenue from customers’ loan payments minus what the bank pays depositors – climbed 9.7% in first three months of 2019 from a year earlier, fueled by a rise in loans. That outweighed a 13% drop in trading revenue.

The performance echoes that of Bank of America’s bigger competitor, JPMorgan Chase & Co., where NII also rose and trading revenue fell. Consumer banks are reaping the benefits of the Federal Reserve’s four interest-rate increases last year and a relatively buoyant United States economy. The first quarter could be the last hurrah for that catalyst as the Fed pauses its rate-tightening cycle and investors prepare for the next recession.

The company also recently announced plans to raise its minimum wage to $20 an hour over two years.

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“Economic growth and consumer activity in the U.S. continue to be solid,” CEO Brian Moynihan said in a statement Tuesday. “It was a challenging capital-markets environment, but our team and platform are optimized to serve clients and generate stable revenues across a range of market conditions over time.’’

Average loans in the consumer business climbed 5%, the Charlotte, North Carolina-based company said in the statement. Revenue from the unit jumped 7.3% to $9.63 billion. The bank’s net interest margin rose to 2.51% from 2.42% a year earlier.

Chief Financial Officer Paul Donofrio said on a conference call with journalists that the strong economy driving that demand will likely continue.

“We don’t see any evidence of a recession,” Donofrio said. “If a recession were to come, we are very well prepared.”

Trading slump

Despite the healthy retail performance, Bank of America’s trading and investment-bank results reflected investor caution even after the S&P 500 Index recouped most of its losses from a selloff at the end of 2018.

Trading revenue fell to $3.55 billion, beating analysts’ estimates of $3.49 billion. Investment-banking fees slipped 7% to $1.26 billion, compared with analysts’ average estimate of $1.29 billion, suggesting the bank’s efforts to turn around the unit have yet to pay off.

Bank of America shares, up 21% this year through Monday, were little changed in early trading.

Other key results:

Net income gained 5.7% to $7.31 billion, or 70 cents a share, surpassing estimates of 66 cents, compared with $6.9 billion, or 62 cents per share one year prior. Revenue fell slightly to $23.2 billion, matching the median analyst forecast. The efficiency ratio, a measure of profitability, improved to 57.5% from 60% a year earlier. Operating leverage was positive for the 17th consecutive quarter. The provision for credit losses increased $179 million to $1 billion. The net charge-off ratio increased 3 basis points to 0.43%. Non-interest expense dropped $618 million, or 4%, to $13.2 billion.

The bank also said that it had repurchased $6.3 billion in common stock in the quarter and paid $1.5 billion in common dividends.

Lananh Nguyen is a reporter for Bloomberg News.

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