Expense reduction and profit growth across all four main businesses allowed Bank of America Corp (NYSE:BAC) to beat Wall Street expectations even as interest income continued to get squeezed, bolstering the long-term bull case on BAC stock.
For the second quarter, BAC said profits fell to $3.87 billion (36 cents per share) from $4.8 billion (43 cents per share) in the year-ago period.
On an adjusted basis — which is what the Street cares about — earnings came to 37 cents a share. Analysts on average were looking for earnings of 33 cents a share, according to a survey by Thomson Reuters. That’s a solid earnings beat.
BofA’s total adjusted revenue fell 7% to $20.62 billion. Analysts were modeling revenue of $20.41 billion, so the top line was another pleasant surprise.
The pernicious effects of ultra-low interest rates showed up in BAC’s net interest income, which fell 12% to $9.2 billion. With net interest margins under relentless pressure — and with banks required to carry more capital — cost cuts have become a key driver of BAC’s bottom line.
BAC Expenses Down to Six-Year Low
In the most recent quarter, expenses were down 3.3% to $13.5 billion year-over-year — a level not seen since 2008, Chief Executive Brian Moynihan said in a statement.
In a pleasant surprise seen across the industry, trading revenue rose sharply after being a drag for much of the last couple of years. Revenue from fixed income, currency and commodities rose 22% to $2.62 billion. On an adjusted basis, trading revenue rose 12% to $3.7 billion.
BAC’s other three main lines of business also enjoyed profit growth. Global wealth-management profit, for example, increased 8% to $722 million even as revenue declined 2.4%.
BAC stock is off about 25% over the last 52 weeks, and the outlook for bank stock remains cloudy as Brexit uncertainty lurches along.
But the latest results do show that Bank or America and the rest of industry are learning how to get by with heavier capital requirements and no help from the rate environment.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
