Bank of America beat analysts’ profit estimate on rebound in bond-trading revenue

The second-biggest U.S. lender is among the most sensitive of large banks when it comes to changes in interest rates. Read more...

Bank of America posted profit that exceeded analysts’ expectations on a rebound in trading revenue and as the company repurchased shares.

The bank posted fourth-quarter profit of $7 billion, a 4% decline from a year earlier, or 74 cents a share, which was an unexpected 6% increase helped by a reduction in outstanding shares. That figure exceeded the 68 cent estimate of analysts surveyed by Refinitiv. Revenue fell 1% to $22.5 billion, edging out the $22.35 billion estimate.

Of the bank’s three main divisions, only its global markets business posted a quarterly increase in profit. The firm’s Wall Street trading division posted a 13% increase in earnings to $574 million as bond trading revenue surged 25% to $1.8 billion, exceeding the $1.68 billion estimate. Stock trading produced $1 billion in revenue, a 4% decline that was just under the $1.07 billion estimate. 

The impact of lower interest rates was felt widely at Bank of America. Companywide net interest income fell 3% to $12.3 billion, and the bank’s net interest margin fell 17 basis points to 2.35% just under the 2.36% estimate. 

“In a steadily growing economy marked by solid client activity, our teammates produced another strong quarter and year, allowing us to increase investments in our customers, communities, and employees,” CEO Brian Moynihan said in the release. “We also delivered for shareholders in 2019 by returning a record $34 billion in excess capital through dividends and share repurchases.”

The second-biggest U.S. lender after J.P. Morgan Chase is among the most sensitive of large banks when it comes to changes in interest rates, according to analysts. So investors will be keen to hear how rates – which were cut three times last year by the Federal Reserve — impacted the quarter, as well as guidance for 2020.

Last month, Moynihan said that the U.S. economy remained strong as consumer spending continued to grow. He also said that fourth-quarter trading revenue is expected to climb 7% to 8% from a year earlier (his guidance proved conservative — trading revenue actually climbed 13% in the quarter) and that investment banking revenue was headed 3% to 4% higher.

Shares of the bank surged more than 40% last year, exceeding the 29% gain in the Standard & Poor’s 500.

On Tuesday, J.P. Morgan and Citigroup both posted profit that beat analysts’ expectations on surging bond-trading results and strong revenue from credit-card operations. Wells Fargo missed analysts’ profit estimates as it booked costs tied to its fake accounts scandal.

Here’s what Wall Street expected:

Earnings: 68 cents a share, a 2.3% decline from a year earlier, according to Refinitiv.

Revenue: $22.35 billion, a 2.4% decline from a year earlier.

Net Interest Margin: 2.36%, according to FactSet

Trading Revenue: Fixed Income $1.68 billion, Equities $1.07 billion

This story is developing. Please check back for updates.

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