BofA tops estimates as surge in M&A boosts advisory fees

Bloomberg

Bank of America Corp (BofA) beat analysts’ earnings estimates as fees climbed at the company’s dealmaking unit, boosted by
a record-breaking period for mergers and acquisitions.
Investment-banking advisory fees rises 65% to a record $654 million in the third quarter as a combination of cheap
financing for buyers and attractive valuations for sellers spurred a wave of takeovers. Overall investment-banking fees were up 23% to $2.2 billion, with firms leaning on the company to handle their debt and equity financing.
“The economy continued to improve and our businesses regained the organic customer growth momentum we saw before the pandemic,” Chief Executive Officer Brian Moynihan said in a statement. “Deposit growth was strong and loan balances increased for the second consecutive quarter, leading to an improvement in net interest income even as interest rates remained low.”
Government aid programs that kept consumers and businesses afloat during the pandemic had cut into loan growth at financial firms. That trend, combined with historically low interest rates meant to bolster the economy, has weighed on the profitability of banks’ core lending businesses.
But there are signs of a turnaround. Loans and leases rise 1% from the previous quarter to $927.7 billion. That’s more than analysts’ estimates of $923.9 billion. The bank is expecting more loan growth across all its products, Chief Financial Officer Paul Donofrio said on a conference call with reporters.
Net interest income, or revenue from customer loan payments minus what the company pays depositors, rise 10% to $11.1 billion. In April, the bank forecast that NII would be about $1 billion higher by the end of the year than the $10.3 billion it posted in the first quarter. By the second quarter, NII had slipped slightly to $10.2 billion.
“We grew revenues faster than expenses, producing year-over-year operating leverage in every business segment,” Donofrio said. NII improved, “despite a challenging rate environment, and our fee-based businesses continued to benefit from robust markets.”
While it’s too early to comment on fourth-quarter investment-banking results, the M&A pipeline “remains at elevated levels” and is almost as high as the record pipeline at midyear, Donofrio said on a the media call.
Sales and trading were also a bright spot for the bank, rising 9% from a year earlier to $3.6 billion. The total was boosted by equities-trading revenue, which rise 33% to $1.6 billion.
Bank of America’s results “demonstrated scalable, tech-driven efficiency as revenues returned,” Wells Fargo & Co. analyst Mike Mayo said.
Revenue was up 12% from a year earlier to $22.8 billion, while noninterest expenses were little changed at $14.4 billion.
Bank of America shares rise 4.5% to their highest price since 2007. They’ve gained 49% this year, outperforming the 32% increase in the S&P 500 Financials Index.

BofA Sells $3.25 Billion of Bonds
Bank of America Corp. tapped the US investment-grade bond market with a $3.25 billion self-led deal, joining Morgan Stanley in issuing new debt following a better-than-expected earnings report.
The bank sold 11-year fixed-to-floating-rate notes to yield 1 percentage point above Treasuries, after initial price discussions in the area of 1.15 percentage points, according to a person familiar with the matter. The proceeds are earmarked for general corporate purposes.
Blowout results from the big US banks may spur even more bond issuance from the financial sector, with borrowing costs still attractive even as some market rates rise. Benchmark 10-year Treasury yields reached the highest since mid-year this week. The bond deal comes as risk premiums in corporate debt remain low, increasing the appeal to issuers.