BofA’s retail bankers save day for beleaguered bond traders

BANK OF AMERICA reported a net income of $7.3 billion. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI
BANK OF AMERICA reported a net income of $7.3 billion in the fourth quarter. / BLOOMBERG NEWS FILE PHOTO/RON ANTONELLI

NEW YORK – Bank of America Corp.’s consumer bankers saved the day for their bond-trading colleagues.

The company’s retail-banking business saw a 5 percent jump in average loans in the fourth quarter and drove a record profit for the company, helping counter a slide in bond trading that’s been hurting all of Wall Street.

“We see a healthy consumer and business climate driving a solid economy,” CEO Brian Moynihan said in a statement Wednesday. “Solid asset quality and loan and deposit growth drove this quarter’s results.”

Net income tripled year-over-year to $7.3 billion, or 70 cents a share, beating the 63-cent median estimate in a Bloomberg survey. The fourth quarter of 2017 included a charge related to U.S. tax reform, resulting in a net income of $2.4 billion, or 20 cents per share.

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Revenue climbed to $22.7 billion, exceeding the $22.4 billion analysts’ estimate, and ahead of the $20.4 billion revenue in the fourth quarter of 2017. The full-year efficiency ratio, a measure of profitability, improved to 59 percent from 63 percent in 2017

Net interest margin, the difference between what a bank charges borrowers and pays depositors, climbed to 2.48 percent in the quarter, a bigger jump than analysts expected. Higher rates and improving loan growth have spurred larger profits at Bank of America’s consumer business in each of the past seven quarters, allowing the bank to weather a loss in share in its investment-banking unit as it pulled back on risk.

“We see nothing in our business to suggest that a slowdown is imminent, so we feel really good about the future,” Chief Financial Officer Paul Donofrio said on a conference call with reporters.

Bank of America’s shares jumped 4.7 percent at 8:36 a.m. in early New York trading. They have declined 15 percent in the past year.

‘Brutal backdrop’

“This was a very good quarter for BofA on an absolute and relative basis,” Glenn Schorr, an analyst at Evercore ISI, wrote in a note Wednesday. Despite a “brutal backdrop” last quarter, almost all of the bank’s key numbers met or exceeded expectations, with the exception of weaker fixed income, currencies and commodities performance and mortgage production, Schorr wrote.

The company’s sales and trading revenue for FICC dropped 15 percent to $1.4 billion in the fourth quarter, falling short of a median analyst estimate of $1.6 billion. That follows declines in bond-trading revenue at JPMorgan Chase & Co., which plunged to the lowest since the 2008 financial crisis, and Citigroup Inc., which fell to a seven-year low. In equities, trading revenue rose 11 percent at Bank of America.

“We’re going to run this business in a way when things are great, we may not make as much as some competitors who are swinging for the fences, but when things aren’t so great, we would expect that you’d also see that performance,” Donofrio said on the call.

Bank stocks sank 18 percent last quarter as investors grew concerned about the potential for a U.S. recession and slowdown in global economic growth. That pessimism, alongside worries about trade tensions between the U.S. and China, triggered big price swings across equities, bonds and foreign exchange. While turbulence can sometimes spur banks’ market-making activities, so-called “bad volatility,” typified by extreme and short-lived price moves, kept wary clients on the sidelines.

Despite those headwinds, Bank of America’s consumer business continued to shine. Average deposits in that division grew 3 percent, while the unit’s net interest income rose 12 percent.

Fees from investment banking slipped 5 percent at $1.3 billion, beating a median estimate of $1.2 billion. Dealmakers are being sent out to rebuild market share after Charlotte, North Carolina-based Bank of America got “a little too careful,” Moynihan said last month.

Other key results:

  • Operating leverage was positive for the 16th consecutive quarter
  • The company’s global wealth and investment management division boosted net income 43 percent to a record $1.1 billion

Lananh Nguyen is a reporter for Bloomberg News.