BofA’s loan revenue rises as rates surge, costs climb

Bloomberg

Bank of America Corp (BofA) posted an increase in net interest income with the lender reaping the benefits of Federal Reserve rate hikes, while second-quarter results were hurt by higher expenses related to regulatory settlements.
Net interest income, a key source of revenue for the bank, rose 22% to $12.4 billion in the second quarter on higher rates and loan growth. Analysts had expected a 20% increase for NII, the revenue collected from loan payments minus what
depositors are paid.
“Solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital-markets environment,” Chief Executive Officer Brian Moynihan said in a statement.
The company’s non-interest expenses rose 1.5% from a year earlier to $15.3 billion, with the “higher expenses recognised for certain regulatory matters,” according to the statement. Bank of America is expected to pay a $200 million fine related to a sweeping US probe into the use of unapproved personal devices, according to people familiar with the matter. That’s the same fine amount JPMorgan Chase & Co. and Morgan Stanley have
disclosed in the investigation.
Bank of America isn’t expecting additional regulatory costs going forward, Chief Financial Officer Alastair Borthwick said on a conference call with reporters, declining to comment on specifics of the device probe.
The bank’s traders slightly missed estimates, with bond-trading revenue up 19% to $2.34 billion and equity trading rising 1.5% to $1.66 billion. The second quarter saw dramatic market swings tied to rate hikes, surging inflation, recession fears and Russia’s invasion of Ukraine. The firm’s fixed-income traders delivered better-than-expected performance, helped by the firm’s performance in macro products such as rates and
currencies, Borthwick said.
Investment-banking revenue falls 41% as same market tumult that drove trading up muted dealmaking. Fees for advising on M&A declined 4%, and revenue from equity and debt issuance dropped 85% and 41%, respectively.
The company’s loan balances rose 12% to $1.03 trillion at the end of the second quarter, roughly matching analysts’ estimates. Lending has been a key focus for investors, with government-stimulus payments undercutting borrowing by companies and consumers during the pandemic, and rising interest rates now making loans costlier.
The bank is reserving for loan growth, and changing its “baseline assumptions for a macroeconomic” environment that appears to be worsening, Borthwick said on the call. Bank of America had provisions for credit losses of $523 million in the second quarter.
“The reserve releases are likely behind us, but obviously at this point forward we’re going to watch how the economic conditions develop,” Borthwick said.