BAC Bank of America Corporation

By Ben Eisen 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 16, 2020).

Bank of America Corp. said fourth-quarter profit fell 4% as the bank struggled to adjust to falling interest rates.

The second-largest U.S. bank by assets said Wednesday it earned $6.99 billion in the quarter, down from $7.28 billion a year earlier.

The bank had revenue of $22.35 billion, down about 1% from $22.68 billion a year ago. Still, that beat the $22.22 billion expected by analysts polled by FactSet.

The drop in profit and revenue reflect how banks must accommodate after enjoying a short-lived period of higher interest rates that boosted their lending margins. The Federal Reserve cut rates three times in 2019, though banks have largely made a smooth transition because of a relatively strong U.S. economy.

"Our results continue to reflect the strength of the U.S. consumer in the biggest economy in the world," Chief Executive Officer Brian Moynihan said on a call with analysts.

Still, the results were a contrast to JPMorgan Chase & Co. and Citigroup Inc. Both reported big jumps in fourth-quarter profit and revenue on Tuesday, boosted in part by strong consumer operations and credit-card spending.

Bank of America's consumer bank reported lower profit and revenue. Shares fell 1.8% Wednesday, while the broader market was up slightly.

Bank of America beat expectations for per-share earnings, though that was partly because it ramped up share repurchases last year, pulling some 9% of its stock out of the market. That helped push up fourth-quarter per-share results to 74 cents from 70 cents a year earlier. That was more than the 68 cents analysts predicted.

The Charlotte, N.C.-based lender particularly benefited from the Federal Reserve's decision to lift rates nine times between late 2015 and late 2018, because the bank has a large U.S. customer base. It was able to charge borrowers more interest without having to significantly increase payouts to depositors.

Net interest income, the amount banks make from lending minus what they pay out on deposits, fell 3% in the fourth quarter from the year-ago period. Net interest margin, which measures lending profitability, was 2.35%, down from 2.52% a year ago.

Lower rates have forced banks to put a greater focus on the fee-generating businesses included in noninterest income. Bank of America reported an increase of 0.4% in noninterest income. JPMorgan and Citigroup boosted revenue from nonlending operations by more than 20% in the quarter.

Still, lower rates aren't all bad news for banks. They boosted appetite for borrowing across the industry and allowed Bank of America and others to lower what they pay on deposits.

Total loans and leases rose 4% from the year earlier. The bank said that demand for mortgages help propel growth in consumer loans. It made $22.11 billion in mortgages, more than double the year-earlier period.

Deposits rose 4% from a year ago to $1.43 trillion, as the largest U.S. banks continue to scoop up market share. The bank increased deposits even though it lowered what it paid on many of them. Bank of America paid 0.58% on U.S. interest-bearing deposits in the fourth quarter, down from 0.63% a year earlier.

Mr. Moynihan said the bank is also seeing more optimism among its commercial clients as economic uncertainty recedes and the trade war between the U.S. and China cools.

"We see some resolution of those issues, and that combined with the continued consumer strength leads us to expect to see businesses continue their solid activity," Mr. Moynihan said.

Expenses rose about 1% to $13.24 billion.

Like its peers, Bank of America was helped by a rebound in trading, which was hit hard by a dismal year-ago period. Trading revenue rose 7% from a year earlier, led by a rebound in the fixed-income division.

Investment banking fees rose about 9% from a year earlier as the bank underwrote more debt and equity.

Write to Ben Eisen at ben.eisen@wsj.com

(END) Dow Jones Newswires

January 16, 2020 02:47 ET (07:47 GMT)

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