BofA Joins Wall Street’s Trading Comeback; Consumer Unit Slips

(Bloomberg) -- Declining interest rates are causing pain for Bank of America Corp.

Shares of the lender fell Wednesday after it reported that net income at the consumer division slid 9.7%, hurt by falling interest income. Bank of America’s retail unit had buoyed the company in recent quarters, driven by loan and deposit growth. It was the first drop in earnings at the division in more than three years.

“The disappointment today clearly is the fact that they’re guiding to flat expenses and then perhaps less optimism on the revenue side,” said Alison Williams, an analyst at Bloomberg Intelligence.

Trading revenue climbed 13%, beating analysts’ estimates, but Bank of America still had the smallest increase on Wall Street, with JPMorgan Chase & Co. posting a record fourth-quarter performance in bond trading and Citigroup Inc.’s debt trading jumping by more than double what analysts had forecast.

Bank of America shares fell 2% to $34.63 at 11:30 a.m. in New York, after earlier declining as much as 2.8%, their biggest intraday drop in three months. They rose 43% last year, compared with a 32% increase for the 24-company KBW Bank Index.

While the biggest U.S. lenders ended the year on a largely high note, buoyed by a strong U.S. economy, they’re also contending with challenges including Federal Reserve interest-rate cuts, expectations of slowing growth, geopolitical tensions and global trade disputes.

Falling Rates

“Our results continue to reflect the strength of the U.S. consumer in the biggest economy in the world,” Chief Executive Officer Brian Moynihan said on a conference call with analysts. “This quarter is also one of transition,” with the bank feeling the impact of falling interest rates in the second half of 2019.

Net interest income -- revenue from customers’ loan payments minus what the company pays depositors -- fell 2.9% to $12.1 billion in the fourth quarter. On a fully taxable-equivalent basis, the figure was $12.3 billion, surpassing the average estimate in a Bloomberg survey.

NII will probably decline in the first half of the year as the Fed’s rate cuts in 2019 make their way into the bank’s results, Chief Financial Officer Paul Donofrio said on the call.

“We would expect NII in the first two quarters of 2020 to be a bit lower” than in the fourth quarter of last year, Donofrio said. “From there, we would expect NII to rise modestly in the second half of the year,” driven by continued loan and deposit growth.

The Charlotte, North Carolina-based company’s investment-banking division continued its turnaround under Matthew Koder. Investment-banking fees rose 9.3% from a year earlier after a blockbuster third quarter.

Also in the fourth-quarter results:

• The bank’s efficiency ratio, a measure of profitability, improved to 59% from 66% in the third quarter.
• Net income fell 3.9% to $6.99 billion as the firm generated an 11% return on equity. Earnings per share totaled 74 cents, beating the 69-cent average estimate of 13 analysts in a Bloomberg survey.
• The lender expects full-year expenses to be broadly stable in the low $53 billion range, Donofrio said on the conference call.

To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub, Peter Eichenbaum

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