BofA’s deal fees surge in sign of investment-bank turnaround

BANK OF AMERICA reported a $5.8 billion profit in the third quarter. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI
BANK OF AMERICA reported a $5.8 billion profit in the third quarter. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI

NEW YORK – Bank of America Corp. posted the biggest jump in investment-banking fees on Wall Street, helping profit overcome headwinds from lower interest rates.

Third-quarter debt underwriting fees unexpectedly surged 19% and the firm’s traders boosted revenue, pushing profit above analysts’ estimates. Its gains in advisory fees also surpassed rivals in the best quarter for the investment-banking unit in more than two years.

The 27% increase in fees shows progress by the new corporate and investment-banking chief, Matthew Koder, who’s overhauling the unit after executives admitted last year they had pulled back too much on risk. Koder is reinvigorated efforts to clinch more midsize transactions in the U.S. and has been adding dozens of bankers across the division.

“We have, over the last four or five quarters, boosted the intensity in that business,” Chief Financial Officer Paul Donofrio said on a call with journalists. The lender has encouraged staff in its commercial and wealth-management units to cooperate on bringing in more business, and “we’re seeing some results – we’re seeing the number of deals in our pipeline go up,” Donofrio said.

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CEO Brian Moynihan has expressed confidence in the United States economy even as the Federal Reserve cuts interest rates and growth estimates are revised down. Lower borrowing costs are a major headwind for banks, while concerns about a global economic slowdown and trade tensions stymie client activity.

In the consumer division, net income climbed 5.3% to $3.3 billion as loan and deposit growth drove net interest income higher. Wealth-management profit rose 8.3% to $1.1 billion.

Bank of America shares advanced 2.1% to $30.34 in early trading in New York at 8:12 a.m. They gained 21% this year through Tuesday, compared with a 17% increase for the KBW Bank Index.

The bank broke its four-quarter streak of record profits as it took a $2.1 billion impairment charge tied to the end of its payments joint venture with First Data Corp. Its 18-quarter streak of positive operating leverage also came to an end.

JPMorgan Chase & Co. on Tuesday posted a surprise jump in revenue from investment banking, as well as the biggest increase in fixed-income trading revenue in almost three years. But Goldman Sachs Group Inc. reported a bigger drop in investment-banking fees than analysts had predicted, down 15% from last year’s third quarter.

Bank of America’s net interest income – revenue from customers’ loan payments minus what the company pays depositors – rose 1% to $12.3 billion in the third quarter, matching the average estimate in a Bloomberg survey.

More:

  • The efficiency ratio, a measure of profitability, matched last year’s 57% excluding the charge.
  • Debt-underwriting fees of $816 million were more than the $673 million expected by analysts surveyed by Bloomberg.
  • Net income fell to $5.8 billion, a decline of 19.4% year over year, as the bank generated an 11% return on equity excluding the charge. Earnings per diluted share for the quarter were 56 cents, compared with 66 cents one year prior.
  • Quarterly revenue was $22.8 billion, a 0.4% increase year over year. Noninterest income totaled $10.6 billion, a decline from $10.7 billion one year before. Net interest income totaled $12.3 billion, an increase from $12.1 billion one year prior.

Lananh Nguyen is a reporter for Bloomberg News.

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