Coverage: Bank of America’s third quarter profit rose 43 percent

Bank of America Corp. on Monday beat analysts’ estimate for third-quarter profit and revenue as the nation’s second-largest bank set aside less than expected for loan losses.

Hugh Son of CNBC.com had the news:

The bank posted earnings per share of 66 cents, a 43 percent increase from a year earlier, exceeding the 62 cent estimate of analysts surveyed by Refinitiv. Revenue rose by a more modest 4 percent, to $22.8 billion, compared with the $22.67 billion estimate.

The bank’s provision for credit losses decreased by $118 million to $716 million, well below the $964.2 million estimate. Meanwhile, the bank managed to cut expenses 2 percent to $13.1 billion, matching analysts’ expectations.

“The credit commentary is really good,” Jeffery Harte, an analyst at Sandler O’Neill, said on CNBC’s “Squawk Box,” adding that the bank’s results were generally solid.

Ken Sweet of the Associated Press reported that higher interest rates also helped the bank:

Like other big banks that have reported so far this quarter, Bank of America’s quarterly results were driven by higher interest rates and lower taxes. BofA’s net interest income rose 6 percent from a year earlier to $11.9 billion.

“Responsible growth, backed by a solid U.S. economy and a healthy U.S. consumer, combined to deliver the highest quarterly pretax earnings in our company’s history,” Brian Moynihan, the bank’s chief executive and chairman, said in a statement.

While Bank of America had to pay more for deposits in the quarter, the bank was more than able to make up for it by charging borrowers more to take out loans. The bank’s net interest spread, which is the difference between how much banks pay for deposits compared with what it charges to loan money out, widened to 2.42 percent in the quarter.

Consumers trying to earn interest on their savings might want to look elsewhere. Bank of America paid roughly 0.50 percent on interest-bearing deposits, up from 0.38 percent a year earlier, among the lowest of the major banks to report this quarter.

Robert Armstrong of the Financial Times reported that the bank’s struggling investment bank operations caused some concerns:

Investment banking fees fell 18 per cent, compared with a 16 per cent decline in the industry’s fee pool. BofA’s investment banking division has been through a turbulent few months with the ousting of corporate and investment banking head Christian Meissner.

“I know we can do better,” said Paul Donofrio, chief financial officer, blaming a loss of market share in M&A advisory work and in leveraged loans, where he said rivals, especially non-bank lenders, were taking a more aggressive approach.

The quarter’s strong point was the consumer business, where loans grew 6 per cent. Strong credit and debit card spending, a healthy increase in brokerage assets at the Merrill Lynch wealth management unit, and efficiency gains all contributed to profit.

“We feel really good about our consumer business going into 2019. We feel really good about the US economy” said Mr Donofrio, citing consumer confidence, low unemployment, and wage growth. “There’s not a lot not to like.”