Bank of America Forecasts Positive Market Outlook

Issue 119

Bank of America gave a bullish revenue outlook as the second-largest US lender reported better than expected earnings and brushed off recession concerns heightened by the war in Ukraine.

The Charlotte-based bank expects net interest income, a closely watched metric that measures the profitability of a bank’s deposits, to jump about 20% in the current quarter, fueled by higher interest rates and a lending rebound.

BofA, the last of the US megabanks to report earnings, was the only big lender to announce an increase in revenue for the first three months of the year. Total revenue rose 2% to $23.2bn, driven by a 13% increase in net interest income as loans jumped above pre-pandemic levels for the first time. That was broadly in line with analysts’ expectations for $23.1bn. “Going forward, and with the forward curve expectation of rising interest rates, we anticipate realizing more of the benefit of our deposit franchise,” chief financial officer Alastair Borthwick said in a statement. Banks have been flooded with deposits throughout most of the pandemic, but tepid loan demand over the past two years made it hard for them to find profitable uses for their customers’ cash.

In lieu of loan growth last year, BofA began to invest deposits into fixed-income investments in the search for yield but its securities portfolio has begun to shrink. “[Loans are] always going to be our first choice in terms of investment,” said Borthwick. However, net income fell 12% compared with a year ago, when earnings were boosted by a $2.7bn release of credit reserves that had been set aside to cover pandemic-related loan losses that never materialized.

Overall, first-quarter profit was $7.1bn, or 80 cents per share, compared with $8.1bn or, 86 cents per share, a year earlier. Analysts polled by FactSet had forecast earnings of 75 cents per share. CEO Brian Moynihan said on a conference call with Wall Street analysts that deposit levels remained elevated and credit losses were still near historic lows, signaling that companies and consumers had the capacity to borrow more.

Source: Financial Times