Bank of America has reported a 10% rise in its third-quarter profits. The Charlotte, North Carolina-based banking giant announced earnings of $7.8 billion, with revenue climbing 2.9% to reach $25.32 billion. This performance surpassed analysts' expectations, with the bank's shares rising 1.4% in premarket trading.
A significant driver behind this growth was a stronger-than-anticipated interest income, which rose by 4% to $14.4 billion. This increase was fueled by higher rates and loan growth, with the bank's provision for credit losses also bettering expectations at $1.2 billion, under the projected $1.3 billion.
CEO Brian Moynihan highlighted the bank's resilience and growth, even amidst signs of an economic deceleration. "We added clients and accounts across all lines of business," Moynihan remarked. He further noted that while U.S. consumer spending continued to outpace the previous year, there was a noticeable slowdown.
However, 2023 has not been entirely favorable for Bank of America. Despite being poised to benefit from higher interest rates, the bank's stock has underperformed compared to its peers. This downturn is attributed to the bank's decision, under Moynihan's leadership, to invest heavily in low-yielding, long-dated securities during the Covid pandemic. As interest rates rose, these securities lost value, making Bank of America more sensitive to the recent surge in the 10-year Treasury yield.
This sensitivity has put pressure on the bank's net interest income (NII), a crucial metric for analysts. In July, the bank's CFO, Alastair Borthwick, reaffirmed that the NII for 2023 would hover around $57 billion. Despite these challenges, Bank of America's stock has shown some resilience, with a modest premarket trading rise of about 1%.
The bank's Wall Street unit also showcased a robust performance, with trading and investment banking revenues on the rise. This uptick indicates a potential thaw in the dealmaking slump that has characterized parts of the financial year. However, investors remain cautious, especially given the bank's investment portfolio's performance during the prolonged period of high interest rates.
Bank of America's decision to invest heavily in longer-dated Treasurys and mortgage bonds during the pandemic's early days has come under scrutiny. As the Federal Reserve began raising rates, the value of these holdings decreased, leading to reduced earnings from these investments. By the end of the third quarter, the bank had accumulated over $136 billion in paper losses on these securities.
Despite these challenges, analysts remain optimistic about Bank of America's future, not anticipating any immediate need for the bank to sell these holdings or book a loss. However, there are emerging concerns about some customers facing financial difficulties as borrowing costs rise. The bank reported net charge-offs of $931 million, marking a 79% increase from the previous year. Provisions for future loan losses also saw an uptick.
In conclusion, Bank of America's third-quarter performance paints a picture of resilience and adaptability in a challenging financial landscape. With a 10% profit rise and a strong showing from its Wall Street unit, the bank continues to navigate the complexities of the modern economic environment.
