US: Bank of America Corp. posts better than expected results as bonds trading surge
Mon Jul 18 2016
Mark Cooper (2237 articles)

US: Bank of America Corp. posts better than expected results as bonds trading surge

Famed for being the second-biggest U.S. bank by assets, Bank of America Corp. posted better than expected results as profits soared in each of its four main businesses. Adding to the good news was an increase in bond-trading more than what analysts predicted.

The bank reported a profit of $4.23 billion, or 36 cents a share. In same period 2015, the bank reported $5.13 billion, or 45 cents a share. Most analysts had forecasted the bank to earn 33 cents a share. Revenue declined to $20.4 billion from $21.96 billion 2015. Adjusted revenue was $20.6 billion, higher than the $20.41 billion expected by analysts.

Bank of America Corp. trading revenue climbed 12% to $3.7 billion from $3.32 billion in the second quarter of 2015. Last week Citigroup Inc. reported a 15% increase in trading revenue while J.P. Morgan Chase & Co. reported 23% increase. Bond, currency and commodity trading revenue increased 22% to $2.62 billion from $2.14 billion in 2015. Stock trading revenue dropped 7.6% to $1.09 billion from $1.18 billion in 2015.

The Bank Has Had A Good Time

The ambiance around Bank of America Corp. has been calm not forgetting the Chairman and CEO Brian Moynihan. In June 2015, the Bank passed the Federal Reserve’s stress test seamlessly for the first time since 2013. The CEO has been keen on cutting costs, however, some analysts are not certain whether more dramatic changes are needed.

The bank cut expenses 3.3% to $13.49 billion compared to 2015, the lowest level since the fourth quarter of 2008. Some of those lower costs are because the bank no longer has to spend as much on servicing bad mortgages. The bank’s efficiency ratio stood at 65.43%, a decline of about 10n percentage points from 1st quarter 2016, but higher than the ’60 point-goal’ that Mr Moynihan has set.

Having led the Bank for six and a half years, Mr Moynihan’s recent concerns revolve around improving earnings, shareholder returns and the bank’s stock price. However, achieving those goals has not been an easy task as long-term bond yields have been dropping affecting bank’s lending profitability and investments in mortgage securities.

Additionally, the bank is especially affected by lower-for-longer U.S. interest rates because of its massive base of U.S. deposits, and the Fed seems not to increase rates anytime soon following uncertainty over post-Brexit.

Performance Summary

Net interest income fell 12% to $9.21 billion from $10.46 billion a year ago, a sharper drop than seen by other big banks. The bank’s return on assets was 0.78% in the second quarter. Profit in global markets, which includes the trading unit, rose 42%. Profit in global banking, which includes the investment bank, rose 21%. Profit in the consumer bank rose 3.4%.

Profit in the wealth management unit rose 7.9%. Bank of America’s shares down 19% since January 2016, worse than any peer bank and a sharper decline than the 8% fall in the KBW Nasdaq index of bank stocks.

Mark Cooper

Mark Cooper

Mark Cooper is Political / Stock Market Correspondent. He has been covering Global Stock Markets for more than 6 years.