7
Bank of America Corp missed revenue expectations in the first quarter but its earnings still beat forecasts as the bank chopped its expenses and expanded its loan book.
The company, the second-biggest US bank by assets, followed rival domestic lenders by struggling to generate top-line growth in the latest quarter and suffered from a decline in trading revenue.
The bank’s shares were down 0.6 per cent at $29.65 in pre-market trading.
Lower market volatility and its negative impact on trading held bank capital markets revenue at US banks during the first quarter.
That has left many banks relying on expense cuts to drive profitability.
JP Morgan Co, the country’s biggest bank by assets, has been the exception, increasing revenue and beating earnings expectations while seeing its expenses rise as it invests in new technology.
Bank of America reported that revenue, net of interest expense, slipped to $23 billion from $23.1 billion a year ago, a number below analysts’ expectations of $23.3 billion.
The bank saw 3 per cent growth in consumer loans and 4 per cent growth in loans to businesses in the first quarter, allowing it to capture more revenue from higher US interest rates.
The company reported a 5 per cent increase in deposits from a year earlier.
Revenue rose in two of the lender’s four main businesses.
Chief Financial Officer Paul Donofrio said growth in the bank’s deposits and loans suggested the performance of the US economy remained solid despite recession concerns.
“Bank of America has demonstrated for years now that we can grow well in an economy that is just growing moderately, even if it is slowing,” he told reporters on a conference call.
The company has benefited from the central bank’s four rate hikes in 2018, while a strong job market has also kept bad loans in check and borrowing healthy.
The bank relies heavily on higher interest rates to maximize profits as it has a large deposit pool and rate-sensitive mortgage securities.
Net interest income - the difference between what a lender earns on loans and pays on deposits - rose 5 per cent to $12.38 billion.
Average deposits also rose nearly 5 per cent to $1.36 trillion.
However, the bank’s trading desks, like those of its peers, have had a slow start to the year because of the US government shutdown and lower volatility.
Changes in the US tax code and concerns about a trade war spurred more trading a year ago.
Overall trading revenue declined 17 per cent.
Equities trading revenue fell 22 per cent and fixed-income trading revenue slipped 8 per cent.
Advisory fees at the bank stayed flat, indicating the bank is missing out on the MA boom lifting rival investment banks.
On Monday, Goldman Sachs Group Inc reported a 51 per cent surge in advisory fees.
