Bank of America reported a quarterly profit decline of 9% that was less severe than anticipated, in spite of a run of rate hikes that helped offset difficulties in its investment banking sector.
Banks now have more room to increase their prime lending rates, which have sparked a revival in their interest income, which for years was stagnant due to near-zero rates. This year’s aggressive move by the U.S. Federal Reserve to tighten monetary policy in the face of stubborn inflation has given banks more room to do so.
According to Siddharth Singhai, chief investment officer of the New York-based investment company Ironhold Capital, “BofA profited from a higher interest rate environment in both the yields on the newly issued loans and just the rise of number of depositors.”
The higher interest rates that the banks are offering as opposed to other risky assets are the direct cause of this.
Compared to its primary competitors, Bank of America has a larger base of customer deposits, making it more susceptible to changes in interest rates. In the third quarter, it saw a 24% increase in net interest income.
According to Refinitiv IBES data, BofA earned 81 cents per share for the quarter that ended on September 30, above the average analyst forecast of 77 cents per share.
Shares of BofA increased 3.1% in pre-bell trade after falling approximately 29% so far this year.
CEO Brian Moynihan noted that “our U.S. consumer clients were resilient with high, albeit slower rising, expenditure levels and nevertheless maintained elevated deposit quantities.”
Higher balances, an increase in interest rates, and a 9% increase in combined credit and debit card spending all contributed to the consumer business of the second-largest U.S. bank reporting a 12% increase in income.
However, the bank increased its loan-loss reserves by $378 million as it prepares for a deteriorating economy. Comparatively, a reserve release of $1.1 billion was made a year prior.
As average loans and leases increased during the quarter, the company’s worldwide wealth and investment management sector recorded a 2% increase in revenue.
According to data from Dealogic, Bank of America maintained its top position in worldwide leveraged financing this year despite a 25% decline in deal volume to $1.4 trillion.
