By Christina Rexrode and Peter Rudegeair
Bank of America Corp. said its quarterly earnings were dragged
down by continued low interest rates, but a pickup in bond trading
helped results beat expectations.
The Charlotte, N.C.-based lender reported a profit of $4.23
billion, or 36 cents a share. That compares with $5.13 billion, or
45 cents a share, in the same period of 2015. It was better than
the 33 cents expected by analysts polled by Thomson Reuters, though
analysts had been cutting their estimates throughout the year.
Revenue fell 7.1% to $20.4 billion from $21.96 billion a year
ago. Still, it also beat expectations: Adjusted revenue was $20.6
billion, above the $20.41 billion expected by analysts. Shares rose
about 3.5%, outpacing the gains of other bank shares.
The second largest bank in the U.S. by assets, Bank of America
has been working to improve earnings, shareholder returns and the
bank's stock price. That task has been made more difficult of late
by long-term bond yields falling, something that hurts the bank's
lending profitability and investments in mortgage securities.
Bank of America, run by Chairman and CEO Brian Moynihan, is
particularly hurt by low interest rates because of its large base
of U.S. deposits, and Mr. Moynihan has been criticized by some
investors who think that waiting for rates to rise is too much a
part of his business strategy.
Net interest income fell 12% to $9.21 billion from $10.46
billion a year ago, a sharper drop than seen by other big banks,
and the U.K.'s vote last month to leave the European Union has
dampened hopes that the Federal Reserve might raise interest rates
this year.
But Mr. Moynihan said he isn't waiting around for rates to
rise.
"The question is, can we grow earnings without rates improving?"
he said on a call with analysts. "We believe we surely can."
To do that, Mr. Moynihan said, the bank will grow fee income,
manage its risk and cut costs.
But the bank has already been cutting costs throughout his
tenure. Expenses declined 3% from a year earlier, the lowest level
since the fourth quarter of 2008, and Mr. Moynihan also announced a
new cost-cutting goal: to get the bank's annual expense level to
$53 billion by 2018. The bank's annual expenses in 2015 were $57
billion, down from $75 billion in 2014 after the bank slashed costs
through a program called New BAC.
Much of the cost-cutting so far, though, has come from
much-lower legal fees and far fewer crisis-era mortgages.
Mr. Moynihan and Chief Financial Officer Paul Donofrio
highlighted other areas where the bank has saved money. An
initiative called Simplify & Improve has cut down on the number
of products the bank offers. In January, retention packages for
some longtime financial advisers expired. Mr. Moynihan said last
month that he planned to keep shrinking the trading unit, which
already shed 10% of its workforce over the previous year.
Investments in technology are also designed to save money, with
automated trading platforms allowing the bank to operate with fewer
traders, and mobile banking allowing it to operate with fewer
tellers. The bank cut more than 6,000 jobs over the year, or about
3% of its roster, and Mr. Donofrio said the layoffs came more from
"highly paid managerial" positions.
Some bankers and traders have privately complained that the
cost-cutting robs them of the resources they need to do their jobs.
Steven Chubak, an analyst at Nomura, asked if the cost-cutting
would hurt revenue.
Mr. Moynihan said the bank wouldn't allow cost savings without
growing the business.
The trading business, for years a drag on big-bank earnings
growth, this quarter proved a surprising standout. Excluding an
accounting adjustment, Bank of America's trading revenue rose 12%.
J.P. Morgan Chase & Co. last week reported a 23% increase in
trading revenue, and Citigroup Inc. reported a 15% increase. The
banks were helped by a miniboom in trading currencies and
fixed-income products, spurred by the Brexit vote.
On the day after the Brexit vote, the bank logged its busiest
day in equities trading since the financial crisis, helping
mitigate an overall 7.6% decline in the business for the quarter
from a year ago. Profit in the bank's major divisions increased,
fueled by a 42% rise in global markets, which includes the trading
division.
Profit in the consumer bank, by comparison, rose 3%. Mr.
Donofrio said the U.S. is in an "ongoing" recovery, with businesses
expanding and employment improving. But he gave no hint that the
bank plans to loosen its lending standards. "In the consumer area
we're focused on prime and super prime," he said, "and I don't see
that changing."
Before Monday, Bank of America's shares have fallen 19% since
the start of the year, compared with an 8% drop in the KBW Nasdaq
index of bank stocks.
Write to Christina Rexrode at christina.rexrode@wsj.com and
Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
July 18, 2016 15:59 ET (19:59 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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