It was all about net interest income for Bank of America’s Q4 results, and the verdict was… well, about what you’d expect.
NII was $14.7 billion in Q4, up 29%. The FTE print ($14.8 billion) was actually a miss, and on the call, Alastair Borthwick described NII in Q4 as less favorable than anticipated.
Still, the growth rate is a spectacle. It’s gone from 9% to 11% to 13.5% to 21% to 24% and now nearly 30%.
Borthwick said NII would likely be $14.4 billion in Q1, but declined to guide beyond that, suggesting the bank wanted to “stay patient.”
That guide, together with the lack of visibility beyond the near-term, had the potential to disappoint investors. Borthwick also said rising rates and policy tightening create uncertainty.
Brian Moynihan told analysts that affluent consumers are shifting away from deposits to higher-yielding products. The bank, he said, will pay higher rates as the cycle progresses.
Borthwick continued, noting that BofA expects modest loan growth (mid-single-digits) going forward and higher funding costs. Loans and leases grew 10% in Q4, matching estimates. The bank took a $1.1 billion provision for the quarter, slightly higher than expected.
The net reserve build of $403 million was attributed to loan growth and “a dampened macroeconomic outlook.”
Charge-offs rose, but are still below pre-pandemic levels. Credit card delinquencies may drift higher, Borthwick said.
Moynihan described customers as “appropriately conservative,” noting that loan demand has slowed in the face of recession worries.
For whatever it’s worth, debit card volumes look to have hit a new record high.
Investors were also interested in costs. Non-interest expense at BofA rose 6% to $15.5 billion, slightly ahead of estimates. Moynihan has slowed hiring, but the bank hasn’t joined peers in making sizable cuts. Expenses will likely rise in Q1 before falling thereafter.
In markets, BofA’s performance was solid. Trading revenue of $3.72 billion was a reasonably comfortable beat, and FICC revenue of $2.34 billion was up 49% and easily topped consensus. Equities revenue of $1.38 billion was in line.
IB was poor, but we’re in the middle of a Street-wide slump, so that’ll be forgiven. Revenue of $1.07 billion was a slight miss, and fees plunged 54%.
It looks like debt underwriting is going to be the weak spot. Just as JPMorgan’s haul from debt underwriting was well below estimates, BofA’s fees there slid 58% compared to expectations for a 44% decline.
BofA did beat on the top and bottom lines. Revenue of $24.5 billion was up 11% and topped the expected $24 billion, while EPS of $0.85 came in ahead of the expected $0.78.
Bottom line: I’d suggest the somewhat cautious NII commentary on the call, the more tepid outlook for loan growth and the specter of an inflation-weary consumer, should give market participants pause. To me, it all felt somewhat ominous when taken together. BofA, like JPMorgan, expects a mild recession.
