Bank of America posts a Q3 earnings beat as it cashes in on higher interest rates and strong demand for loans

Bank of America posts a Q3 earnings beat as it cashes in on higher interest rates and strong demand for loans

Brian Moynihan.

Bank of America published third-quarter earnings on Monday that beat Wall Street’s forecasts.
The banking giant’s net revenue rose 8% to $24.5 billion, but net income slid 8% to $7.1 billion.
CEO Brian Moynihan highlighted resilient consumer spending and elevated deposit levels.

Bank of America reported third-quarter earnings on Monday that beat Wall Street’s expectations, sending its stock up as much as 3% in premarket trading.

Here are the key numbers:

Revenue: $24.5 billion versus a consensus estimate of $23.6 billion from analysts polled by RefinitivAdjusted net income: $7.1 billion versus a $6.3 billion estimateAdjusted EPS: $0.81 versus a $0.77 estimate

Bank of America posted an 8% increase in net revenue to $24.5 billion, as sales grew in three of its four main divisions. However, its net income slid 8% to $7.1 billion as profits fell in the global banking and wealth management segments.

The US banking giant’s net interest income surged 24% to nearly $14 billion on the back of higher interest rates and strong demand for loans. However, its non-interest income dropped by 8% to below $11 billion, as lower fees from investment banking and asset management more than offset higher sales and trading revenues.

Moreover, the bank added a net $378 million to its credit reserves, likely because it expects an economic downturn to spark a jump in loan defaults. It released $1.1 billion of reserves in the third quarter of last year. 

“We continued to see strong organic client growth across our businesses, with increased client activity helping to drive revenue up by 8%,” CEO Brian Moynihan said in a statement.

“Our US consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” he added.

Here’s a breakdown of how the bank’s four key divisions performed:

Bank of America’s key consumer-banking division grew revenue by 12% to $9.9 billion, as higher balances and interest rates boosted net interest income. Net income only inched up 1% to $3.1 billion, reflecting business investments and a nearly $500 million increase in provision for credit losses.

The bank’s global wealth and investment management segment posted a 2% rise in revenue to $5.4 billion, as higher net interest income was partly offset by lower market valuations. Net income slid 3% to $1.2 billion thanks to higher non-interest expenses.

Global banking revenue jumped 7% to $5.6 billion due to higher interest rates and strong loan growth, partly offset by a 46% plunge in investment-banking fees to $1.2 billion. The division’s net income tumbled 20% to $2.8 billion, largely because it set aside $170 million to cover anticipated credit losses in light of a weaker macroeconomic outlook. In contrast,  it released $781 million of reserves in the same period last year.

Finally, global market revenue slipped 1% to $4.5 billion, as a roughly 50% slump in investment-banking fees more than offset a 13% rise in sales and trading revenue. The segment’s net income grew 15% to $1.1 billion, reflecting lower non-interest expenses.

Read more: The CIO of the world’s largest wealth manager shares 9 places to put your money in the near-term as a sustained rally in stocks looks ‘unlikely’ and uncertainty remains high

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Markets, MI Exclusive, Markets, Stocks, Bank of America, Banking, Wall Street, US banks, Credit Reserves, Inflation, Recession, Federal Reserve, Rate Hikes, Consumer spending, Consumer Credit, Stock Market, Brian Moynihan

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