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BofA beats estimates on strength in trading, investment banking

Posted by: Admin | Posted on: April 18th, 2017 | 0 Comments

Bank of America Corp (BAC.N) reported a higher-than-expected jump in quarterly profit as trading surged and the lender earned more from underwriting debt and equity offerings and advising on deals.

Wall Street banks have been vitalized by increased market activity prompted by the so-called “Trump trade”. Investors also changed their positions around the Federal Reserve’s interest rate hikes, boosting trading revenue for big U.S. banks.

BofA also benefited from loan growth as customers borrowed more. But the pace of growth slowed, mirroring the broader U.S. banking industry, as higher interest rates crushed a wave of mortgage refinancing.

“We saw good client activity in our balanced portfolio of businesses … The U.S. economy continues to show consumer and business optimism, and our results reflect that,” BofA Chief Executive Brian Moynihan said in a statement.

JPMorgan Chase Co (JPM.N) and Citigroup Inc (C.N) also reported better-than-expected quarterly profit last week, driven by strong trading activity.

The second-largest U.S. bank’s shares were up about 1 percent at $23 in early trading on Tuesday. The stock has risen 34 percent since the presidential election, making it the best performer among the top six U.S. banks.

Bank stocks have rallied since the election on hopes of simpler regulations and tax cuts under President Donald Trump’s administration. However, the momentum has lost steam recently as investors scale back some of those expectations.

BofA’s total revenue rose about 7 percent to $22.45 billion in the three months ended March 31, handily beating the average analyst estimate of $21.61 billion.

Revenue from trading activities, excluding special items, rose 21.2 percent to $4 billion, helped by a 29 percent increase in fixed-income trading revenue.

Investment banking income jumped 37.4 percent to $1.58 billion, riding on the back of a strong recovery in global investment banking services, which includes MA advisory and capital markets underwriting.

“This is the type of quarter investors have been waiting for from BofA,” Glenn Schorr, an analyst with Evercore ISI said.

Net income jumped about 44 percent to $4.35 billion. Earnings per share rose to 41 cents per share, topping the average analyst estimate of 35 cents. (

BofA made $11.06 billion as net interest income in the quarter, up 5.5 percent from a year earlier.

BofA CFO Paul Donofrio said he expected continued improvement in net interest income in the second quarter. He, however, added that the increase would be “more modest” than in the first quarter as interest rate movements are providing less of a tailwind for the bank.

The lender relies heavily on higher interest rates to maximize profits as it has a large stock of deposits and rate-sensitive mortgage securities.

BofA’s non-interest expenses were nearly flat at $14.85 billion. Moynihan said last year he would make trimming costs a top priority and would shrink annual expenses by an additional $5 billion by 2018.

The bank’s efficiency ratio, a closely watched measure of revenue divided by expenses, was 66.2 percent, compared with 70.5 percent a year earlier.

(Reporting by Nikhil Subba in Bengaluru and Dan Freed in New York; Editing by Saumyadeb Chakrabarty)

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