BofA profits rise 40%, bolstering evidence of post-crisis earnings rebound

Bank of America has produced its third successive rise in quarterly profits in a sign of a sustained turnround after years of post-crisis under-performance.

Wall Street’s trading recovery and the Federal Reserve’s interest rate rise helped the second biggest US bank by assets generate $4.86bn worth of net income in the first quarter – a rise of 40 per cent from a year ago.

“The US economy continues to show consumer and business optimism, and our results reflect that,” said Brian Moynihan, chairman and chief executive.

The stronger-than-forecast figures, which nudged Bank of America shares up 1.3 per cent in pre-market trading on Tuesday, are the latest relatively upbeat batch of earnings from the US banking sector after JPMorgan Chase and Citigroup also disclosed improvements last week.

BofA benefited from the trends in investment banking that also boosted its rivals. Fixed income sales and trading revenues — a crucial contributor to the fortunes of Wall Street — surged 29 per cent to $2.93bn from an especially tough period a year ago. Equities revenues also improved, up 7 per cent to $1.1bn.

Investment banking fees strengthened from $1.2bn to $1.6bn.

Meanwhile net interest income increased 5 per cent to $11.1bn, a sign the bank is benefiting from the Fed’s tightening of monetary policy. Net interest margins, a measure of the difference between what banks charge borrowers and what they pay out on deposits, improved from 2.33 per cent to 2.39 per cent. Bank of America is seen as one of the most
“rate sensitive” lenders in the country because of the mix of its business.

Total loans and leases, however, ticked up only 0.6 per cent – the latest sign US banks have eased off on the lending accelerator in recent months.

Shares in Bank of America were among the biggest winners in the US stock market’s post-election rally, gaining as much as 50 per cent as investors bet it would benefit from lower taxes and lighter regulation – and also get an especially big boost from higher interest rates, partly because of the scale of its retail operation. But they have dipped 11 per cent since March as the most bullish expectations faded.

Mr Moynihan took the helm seven years ago as the bank was grappling with the immediate aftermath of the financial crisis. Since then he has disposed of non-core assets and cut costs, although the shares have lagged behind rivals. Next week the bank faces another vote on whether the chairman and chief executive roles should be separated, almost two years after it survived an investor rebellion on the issue.

Earnings per share came in at $0.43, up from $0.29 the same period a year ago.