BofA Traders Fall Short of Rivals as Revenue Forecast Missed

(Bloomberg) -- Bank of America Corp.’s traders didn’t seize on the markets boon that lifted rival banks in the third quarter.

Revenue from trading rose 3.6% to $3.34 billion, falling short of the $3.5 billion that analysts had forecast. While JPMorgan Chase & Co. and Citigroup Inc. each posted jumps of at least 17% at their trading desks, Bank of America’s small increase wasn’t enough to boost overall revenue as the bank’s consumer unit saw a 17% slide.

Wall Street trading desks have benefited from active markets during the pandemic, and those results have propped up lending units that are grappling with broader economic hardship in the U.S. after the coronavirus pandemic shuttered businesses and put millions of Americans out of work.

Bank of America’s results were “underwhelming,” with only a small increase in fixed-income and equities trading, Vital Knowledge founder Adam Crisafulli wrote in a note to clients.

The company is “completely satisfied with what we’ve done,” Chief Executive Officer Brian Moynihan told reporters on a conference call. “We lost a little share because we don’t take the same amount of risk” as other banks, but “we made trading profits every day this quarter.”

Bank of America shares fell 2.3% to $24.38 at 9:51 a.m. in New York trading. The stock has fallen 31% this year.

Investment banking was a bright spot, delivering the second-best quarter in the company’s history, with a 15% jump in fees to $1.8 billion.

Moynihan, in a move echoed by other bank executives this week, has called for another round of federal stimulus to keep businesses afloat and promote economic recovery. With its 4,300 branches across the country, Bank of America is often seen as a bellwether for the U.S. consumer. And while it increased loan-loss reserves, the company’s leaders continue to express more optimism than their peers on the economy, citing a rebound in consumer activity and robust credit quality.

“We are seeing a return to the fundamentals of a generally sound underlying economy,” Moynihan said. “Spending by our customers is still solid.”

The bank said in a statement Wednesday that it set aside $1.39 billion more for soured loans, less than analysts had estimated. That follows JPMorgan and Citigroup, which on Tuesday earmarked a combined $2.87 billion for loan losses in the third quarter, less than half what analysts expected. Bank of America’s provision was driven by the impact of the pandemic on commercial clients, particularly in the travel and entertainment industries, the bank said.

Net interest income at Bank of America, or revenue from customer loan payments minus what the company pays depositors, fell to $10.2 billion on a fully taxable-equivalent basis, compared with analysts’ $10.3 billion median forecast. The bank is “optimistic” that NII will pick up next year after reaching a trough in the third quarter, Chief Financial Officer Paul Donofrio said.

Earnings in the consumer business were depressed by lower interest rates and consumer fees, as well as higher costs for safety measures, the bank said. Consumer payment deferrals fell to $9 billion in September from $13 billion in August.

“We don’t expect to see a meaningful increase in net charge-offs until mid-next year, and we expect that the reserve builds are behind us,” Moynihan said.

Results also were affected by some one-time items, including a $700 million gain from a deferred-tax asset in the U.K., which was countered by litigation costs.

Also in the third-quarter results:

• The bank’s efficiency ratio, a measure of profitability, worsened to 71% from 60% in the second quarter, partly because of litigation expenses.
• Net income fell to $4.88 billion from $5.8 billion a year earlier, but still surpassed the $4.3 billion average estimate of 12 analysts. Per-share earnings of 51 cents beat analysts’ 50-cent forecast.
• Total revenue fell almost 11% to $20.3 billion.

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