US consumers “remained resilient” during the third quarter, Brian Moynihan said Monday, in remarks accompanying a decent set of results from Bank of America. Spending was “strong,” albeit slower, and Americans “maintained elevated deposit” balances.
To the extent you’re inclined to take the word of a big bank CEO, Moynihan’s relatively rosy assessment of the US consumer was another vote of confidence in the world’s largest economy, which Joe Biden last week described as “strong as hell,” while enjoying some ice cream at an Oregon Baskin Robbins.
I’d note, upfront, that BofA’s provision for credit losses was $898 million, ahead of estimates, and up from $523 million last quarter. This time last year, banks were still benefiting from reserve releases as economic risks associated with the pandemic faded. The reserve build wasn’t due to asset quality, CFO Alastair Borthwick told reporters. Rather, it was the result of “recent loan growth.”
Speaking of loans, average growth across commercial and consumer was 12% in Q3 (figure below). That was basically in line with expectations. In residential mortgage and home equity, lending plunged 40%.
Average consumer deposits remained above pre-pandemic levels. Credit and debit spend was up sharply in dollar-volume terms, particularly at gas stations, but transactions (a more relevant metric given inflation realities) also rose, with travel and entertainment up double-digits.
Average deposits in consumer rose 7%. Q3 marked the fifth consecutive quarter of average deposits in excess of $1 trillion.
Net interest income rose 24% to $13.9 billion on higher rates and loan balances (figure below). Q2 marked the first time NII was above $12 billion since the onset of the pandemic. Q3’s increase topped estimates, and the near $14 billion haul was the most for any quarter in at least 10 years. Fed hikes are helping banks. Now if only depositors were reaping the rewards.
NII benefits by more than $4 billion over 12 months from a 100bps parallel shift in the curve. Net interest yield excluding global markets was 2.51%, up 31bps.
In IB, where Wall Street is mired in a multi-quarter slump, BofA managed a respectable showing, at least compared to consensus. The 46% YoY decline in revenue was no worse than expected, which counts as good in the current environment.
Last week, results from Morgan Stanley and JPMorgan underscored the scope of the malaise in dealmaking and underwriting. BofA’s numbers did exactly nothing to dispense with the gloom, but it could’ve been worse (figure below).
Equity underwriting collapsed which, again, wasn’t surprising. Advisory fees dropped 34%.
BofA’s traders held up. FICC revenue was better than expected, rising 27% to $2.57 billion. Equities revenue fell just 4% to $1.54 billion.
Non-interest expenses at the bank rose 6% to $15.3 billion, more than expected. The figure is lower without litigation costs.
On the call, Moynihan reiterated that consumers are still spending. In fact, he said, spending is up 10% in October. It’s worth noting that debit card volumes slipped after hitting a record last quarter (figure below).
Notwithstanding the downtick, that chart doesn’t exactly scream disinflation.
In any event, BofA beat on both the top and bottom lines. Card delinquencies are below pre-pandemic levels, the wealth unit opened a record number of accounts in Q3 and the bank is “adapting” to new regulatory requirements. Borthwick told analysts NII will likely rise $1.25 billion in Q4 from Q3.
Frankly, BofA’s quarter looked uniformly solid. I’m sure sector analysts will find something not to like, but on my reading, these numbers were as good as can be expected.
It all sounds wonderful and then I talk to one of my sons. He works for a multinational company that produces paper-based consumable products.
They have gone from running every machine, 24/7, to operating less than half of them.
Oh, and they have implemented a “hiring freeze”.
He’s worried. He’s got a wife, three kids, and a mortgage . The good news is that Brian Moynihan isn’t worried, at all.