BAC Bank of America Corporation

By Christina Rexrode and Peter Rudegeair 

Bank of America Corp. reported its biggest annual profit in a decade as its trading business benefited from the uncertainty caused by Donald Trump's surprise election and the bank continued to slash expenses.

But revenue for the latest quarter came in lower than analysts had expected.

The Charlotte, N.C.-based bank reported a profit for 2016 of $17.91 billion, up from $15.84 billion a year earlier and the biggest annual profit since 2006.

The bank also unveiled plans to increase its planned share repurchases for the first half of this year, to $4.3 billion from $2.5 billion.

Quarterly profit at the Charlotte, N.C.-based bank grew to $4.7 billion from $3.28 billion a year earlier. Per-share earnings rose to 40 cents, better than the 38 cents expected by analysts.

Quarterly revenue improved 2.1% to $19.99 billion. On an adjusted basis, revenue was $20.22 billion, less than the $20.85 billion analysts had been expecting.

Shares rose 1.1% in morning trading.

Brian Moynihan, who this month marked his seven-year anniversary as CEO, is enjoying a period of relative calm after years of heavy loan losses and debilitating legal fees. Now, Mr. Moynihan is working on improving shareholder returns. The bank's shares have shot up by a third since Mr. Trump's election, more than the rally across broader bank stocks.

Despite the rally, some investors point out the stock is still cheaper than many other banks. It is still trading below book value, for example, and the bank's return on equity is still below its cost of capital.

The bank improved certain shareholder metrics, including return on assets and return on tangible common equity, but CLSA analyst Mike Mayo asked when the bank would reach its goals on those measures. Chief Financial Officer Paul Donofrio replied that the bank was on the right track and that for the final timeline, "We'll just have to wait and see."

Mr. Mayo replied that it seemed like the bank was giving itself "a free pass...When you get there is when you get there.'"

In a call with reporters, Mr. Donofrio also shrugged off questions about the bank's revenue miss, saying that analysts had simply forecast capital markets and investment banking activity that didn't pan out. "We feel very good about our performance," Mr. Donofrio said. "Our performance was consistent with what we thought we would do."

Trading revenue made up for the revenue weakness in other parts of the bank. Quarterly revenue was essentially flat in the banking division, which includes investment banking, and consumer banking. It was down in wealth management.

Trading revenue in the markets division, excluding an accounting adjustment, rose 11% to $2.91 billion from $2.63 billion in the fourth quarter of last year. For banks, the uncertainty caused by the U.K.'s vote to leave the European Union, the guessing game around whether the Federal Reserve will raise interest rates and Mr. Trump's surprise election has been a boon for Wall Street, creating three straight quarters of strong trading activity.

Stock trading revenue increased 7.5% to $948 million due to strength in derivatives. Fixed-income trading revenue rose 12%, less than the 15% rise Mr. Moynihan predicted at an investor conference last month. Mr. Donofrio said that activity had slowed down in the second half of December, partly because the Federal Reserve's interest-rate increase slowed demand for trading municipal bonds, government bonds and other products tied to interest rates. "It felt much more like a typical December," Mr. Donofrio said, a reference to the usual slowdown at the end of the year.

Instinet analyst Steve Chubak asked if Bank of America, with its traditionally conservative approach to trading, was positioned to take advantage of any continued wave of fixed-income trading. Mr. Donofrio said the bank was comfortable with its risk decisions.

"We're not going to look exactly like every competitor every quarter," Mr. Donofrio said. "We've often said that when things are great we might not be as high but when things aren't so good we're not going to be as low."

Fourth-quarter investment-banking revenue fell 4% to $1.22 billion due to a decline in fees from deal making.

Bank of America's large base of U.S. deposits and rate-sensitive mortgage securities makes it particularly dependent on an uptick in interest rates, which remain near record lows even though the Federal Reserve raised interest rates last month. The bank's net interest income rose 6.3% to $10.29 billion, but paper losses on its investment portfolios subtracted from its net worth. Mr. Donofrio said the bank expects to book an extra $600 million in net interest income in the first quarter compared with the fourth quarter, because of the Fed rate rise.

Quarterly expenses declined 6.1% to $13.16 billion from $14.01 billion a year earlier as the bank continued to cut jobs and sell or shutter branches.

Mr. Moynihan has made cost cutting a key tenet of his strategy, sometimes noting how the bank could save both time and money by switching more customers from cash and checks. Over the summer, Mr. Moynihan promised to cut another $5 billion in annual expenses by 2018. To get to that level, the bank would need to turn in expenses averaging $13.25 billion a quarter.

Bank of America is the second-largest U.S. bank by assets. But bank officials on Friday also announced that they had reduced risk exposures and the company's overall complexity to qualify for a lower capital surcharge with the Federal Reserve.

Write to Christina Rexrode at christina.rexrode@wsj.com and Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

January 13, 2017 11:19 ET (16:19 GMT)

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