Back in April, when Bank of America reported first quarter results, the bank cautioned that the boon to net interest income from rate hikes was likely to fade during the remainder of the year.
Fast forward to the second quarter and NII is, of course, a hot topic for bank earnings amid the evolving rates landscape. On Tuesday, JPMorgan trimmed its net interest income forecast for the full year, briefly irritating the market. Shares recovered from a knee-jerk pre-market loss and rallied strongly on the day, but the point is that folks are keen to parse the outlook for banks now that the Fed’s hiking cycle is over.
Three months back, BofA said net interest income will probably rise 3% this year, down from 6% in 2018 and 5% in Q1. That’s not the best news in the world for the consumer unit, which has picked up the slack for falling trading revenue in the last couple of quarters (see second figure below).
In Q1, net income for consumer banking was $3.2 billion, representing a 25% jump YoY. Revenue rose 7% for the period to $9.6 billion driven by NII. On Wednesday, the bank reported Q2 results and net income for consumer banking was $3.3 billion, up just 13% YoY. Revenue came in at $9.7 billion, up 5%.
Net interest income of $12.19 billion missed the lowest estimate (the range was $12.31 billion to $12.57 billion). The bank cites lower short-term rates (impacting variable rate assets and improving long-term debt costs), higher bond premium amortization expense driven by lower long-term rates and higher funding costs in Global Markets.
Global markets revenue, meanwhile, fell again. Breaking down the results, sales and trading revenue was $3.3 billion, down 10% net of DVA. FICC results were decent after beating estimates in Q1. This quarter, FICC trading revenue was $2.13 billion, representing an 7.1% YoY drop. That was slightly better than estimates. Client activity was subdued across “most” products.
In Equities, revenue for Q2 was $1.15 billion, down 12%, a drop the bank blames on “weaker performance in EMEA derivatives”. This puts BofA in the same category as Citi and JPMorgan, who both saw equities trading revenue fall, meaning Goldman’s results now stand out even more.
On the headlines, net income of $7.3 billion rose 8%, while EPS was $0.74, up 17% and beating estimates ($0.71). Revenue, net of interest expense, was $23.1 billion for the quarter, up 2%.
Moynihan echoed Jamie Dimon in delivering a relatively upbeat take on the American consumer. To wit:
Our view of the economy reflects the activity by the one-in-two American households we serve, which points to a steadily growing economy. We see solid consumer activity across the board, with spending by Bank of America consumers up five percent this quarter over the second quarter of last year.
The provision for credit losses rose $30 million to $857 million, below the lowest estimate.
