BAC Bank of America Corporation

By Christina Rexrode and Peter Rudegeair 

Bank of America Corp. reported quarterly earnings that 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. The latest results included 6 cents a share in market-related charges. Analysts polled by Thomson Reuters had expected the bank to earn 33 cents a share.

Revenue fell to $20.4 billion from $21.96 billion a year ago. Adjusted revenue was $20.6 billion, above the $20.41 billion expected by analysts.

Shares edged up 0.4% premarket.

Trading revenue, excluding an accounting adjustment, rose 12% to $3.7 billion from $3.32 billion in the second quarter of last year. J.P. Morgan Chase & Co. last week reported a 23% increase in trading revenue, and Citigroup Inc. reported a 15% increase.

Bond, currency and commodity trading revenue rose 22% to $2.62 billion from $2.14 billion a year ago. Stock trading revenue fell 7.6% to $1.09 billion from $1.18 billion a year ago.

Things have been relatively calm for the bank, the second largest in the U.S. by assets, and Chairman and CEO Brian Moynihan. Last month, it passed the Federal Reserve's stress test without incident for the first time since 2013. The crisis-era legal fees that dogged earnings have been receding for a couple years.

One of Mr. Moynihan's key tenets has been cutting costs, but some analysts are questioning whether more dramatic changes are needed. The bank cut expenses 3.3% to $13.49 billion compared with a year ago, the lowest level since the fourth quarter of 2008. But those lower costs are partly because the bank no longer has to spend as much on servicing troubled mortgages. The bank's efficiency ratio was 65.43%, down about 10 percentage points from the first quarter but higher than the low 60s goal that Mr. Moynihan has set.

Mr. Moynihan, who has led the bank for six and a half years, is working to pivot to improving 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.

The bank is particularly hurt by lower-for-longer U.S. interest rates because of its large base of U.S. deposits, and the Federal Reserve doesn't seem poised to increase rates any time given the uncertainty wrought by the U.K.'s decision last month to leave the European Union. 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.

Mr. Moynihan has long laid out a goal of a 1% return on assets, but has said he won't be able to do it until interest rates are higher. The bank's return on assets was 0.78% in the second quarter.

Profit in global markets, which includes the trading unit, rose 42%. Mr. Moynihan said last month that he expected to continue trimming the trading unit. Some analysts have questioned whether he has the right business mix in trading: The bank, compared with rival J.P. Morgan, is less focused on rates and currencies products, which got a boost in the last week of the quarter from Brexit-related trading.

Profit in global banking, which includes the investment bank, rose 21%. Profit in the consumer bank rose 3.4%.

Profit in the wealth management unit rose 7.9%. The unit has been a reliable source for steady returns, but analysts had predicted that the volatility caused by Brexit might influence some clients to tamp down on activity.

Bank of America's shares have fallen 19% since the start of the year, worse than any peer bank and a steeper fall than the 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 07:58 ET (11:58 GMT)

Bank of America (NYSE:BAC)
Historical Stock Chart
From Mar 2024 to Apr 2024

Bank of America (NYSE:BAC)
Historical Stock Chart
From Apr 2023 to Apr 2024