Bank of America shrugged off recession concerns and raised its annual outlook for revenue as resilient consumers gave the bank enough confidence to continue pushing for growth.
“An analyst might wonder whether the talk of inflation, recession, and other factors could rectify slower spending growth,” chief executive Brian Moynihan said. “We just don’t see it here at Bank of America.”
Spending across the second-largest US bank’s debit and credit cards jumped 9 per cent, or $18bn, compared with the same period a year ago. Consumers are also borrowing more even though deposit levels remain well above pre-coronavirus pandemic levels, Moynihan told an earnings call on Monday.
Consumer loans grew by $14bn, or 5 per cent, during the third quarter as customers opened 1.3mn new credit card accounts. A $68bn increase in consumer deposits helped offset falling balances from corporate customers, which dropped 7 per cent as large clients moved into higher-yielding investments.
BofA followed Wall Street peers JPMorgan Chase and Wells Fargo in boosting its annual revenue outlook as interest rates rise faster than anticipated. Banks have benefited from the Federal Reserve’s campaign to cool down the economy, which increases how much lenders can charge borrowers.
Net interest revenue, or the difference between how much a bank earns on its loan book and pays for deposits, surged 24 per cent to $13.8bn in the most recent quarter and the bank increased its overall revenue guidance for the year by about $600mn.
It reported a net interest margin of 2.06 per cent, up from 1.68 per cent last year.
However, concerns about a possible recession — which are heightened by rising rates — have contributed to plunging revenue in other parts of the bank. Investment banking fees fell 46 per cent to $1.2bn as economic uncertainty kept deals on the back burner.
BofA’s traders were able to take advantage of the market volatility during the quarter, supporting a 13 per cent rise in revenue from the markets division to $4.1bn. However, this boost was not enough to offset falling fees in other segments.
Non-interest income, or fee revenue, across the bank declined 8 per cent.
Overall group earnings were also dented by a $378mn increase in reserves to help cover potential losses from bad loans.
Overall, the Charlotte, North Carolina-based bank reported a quarterly profit of $7.1bn, or 81 cents a share, down from $7.7bn, or 85 cents a share, a year earlier. Total revenue rose 8 per cent to $23.5bn.
Wall Street analysts had forecast earnings of 78 cents a share on $23.5bn in revenue, according to a FactSet poll.
Investors welcomed the result and had pushed the shares 6.1 per cent higher in Monday afternoon trading in New York, more than double the 2.7 per cent gain for the S&P 500.
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