Bank of America’s net income fell, but other banks had bigger declines.
Victor J. Blue/Bloomberg
In what has otherwise been a challenging earnings season for banks, Bank of America ’s results topped analysts’ estimates on both the top and bottom line.
Bank of America (ticker: BAC) benefited from a strong pickup in lending activity following a nearly two-year drought caused by pandemic stimulus. The bank posted earnings of $0.80 a share, well ahead of the $0.75 per share forecast by analysts surveyed by FactSet. Revenue of $23.2 billion came in slightly above estimates of $23.1 billion.
Net income was $7.1 billion, 12% lower than for the first quarter of 2021. That said, Bank of America’s decline in profits wasn’t as severe as peers: Last week, JPMorgan Chase (JPM) posted a 42% slump, while Wells Fargo (WFC) had a 21% drop.
“Our strong first quarter client activity drove results that allow us to deliver for shareholders while continuing to invest in our people, businesses, and communities,” Brian Moynihan, chairman and chief executive at Bank of America, said in a statement.
Bank of America’s results were helped by a rebound in lending activity, which had been in decline over the past two years across the sector because people who otherwise might have been borrowers had plenty of cash thanks to pandemic-era government stimulus payments. Average loan and lease balances climbed 8% to $978 billion, helped by a 16% rebound in commercial lending. Net interest income increased 13% to 11.7% as a result of strong loan and deposit growth.
The bank’s global banking division noted a 35% decrease in investment banking revenue—roughly on par with the results of peers such as Goldman Sachs (GS) and Morgan Stanley (MS)—as deal making activity dried up. Trading revenue at Bank of America’s global markets division was down 15% as modest gains in equities failed to make up for weaker fixed-income trading.
Bank of America’s results cap off what has been a roller coaster earnings season for banks. While the sector’s fundamentals remain strong, banks are contending with several risks at once: the knock-on effects of Russia’s invasion of Ukraine, rising inflation, and uncertainty over how the Federal Reserve’s plan to raise interest rates will affect borrowers and the economy in general.
So far, Bank of America has fared well, noting it has “very minor direct exposure to Russia-based companies.” Elsewhere in the bank, the pickup in lending activity has been particularly beneficial because the companyis among those more sensitive to rising interest rates, and rates have taken off in recent months.
The bank noted that a one percentage-point increase in both short- and long-term interest rates would increase its net interest income by $5.4 billion over the next 12 months.
Bank of America shares were up 1.5% in premarket trading.
Write to Carleton English at [email protected]
