Bank of America, the second-largest U.S. lender, has surpassed Wall Street expectations with its impressive second-quarter performance. Strong loan payments and outstanding outcomes in investment banking and trading activities increased the bank's profit. Recently, the bank also forecast an 8% growth in net interest income (NII) following a remarkable 14% increase in the second quarter.
Bank of America, along with JPMorgan Chase (JPM.N) and Wells Fargo (WFC.N), capitalized on the Federal Reserve's decision to increase interest rates as a measure to control inflation. This move allowed the banks to benefit from higher rates and enhance their net interest margins.
CEO Brian Moynihan expressed confidence in the U.S. economy, characterizing it as healthy and resilient despite growing at a slightly slower pace. He echoed the sentiments of his peers in the banking industry, who are also cautious about the economic outlook and the stability of the job market.
Furthermore, Bank of America's diversified business mix and strict cost discipline have played a vital role in offsetting the pressure on its net interest margin as clients seek higher yields. Although there were some deposit outflows, they slowed down during the second quarter.
The bank's second-quarter earnings of 73 cents per diluted share exceeded analysts' average forecasts of 84 cents, according to IBES statistics from Refinitiv. The investment banking division recorded a significant surge in earnings, reporting $2.7 billion, a remarkable 76% increase. The strong performance was attributed to higher leasing and interest payments, along with the avoidance of leveraged finance mark-to-market losses.
While global M&A activity declined by 36% year-on-year in the second quarter, the recovering stock market is expected to boost dealmaking in the near future. Sales and trading revenue rose 3% to $4.3 billion, with trading fixed income, currencies, and commodities showing a notable increase of 7% to $2.7 billion.
The consumer's financial health also contributed to a significant increase in consumer banking income of 15% to $10.5 billion. However, to prepare for potential credit card loan defaults, Bank of America's allowance for credit losses increased by $602 million to $1.1 billion during the quarter.
Despite facing legal expenses of $276 million due to customer fines, Bank of America managed to settle the charges and avoid further legal repercussions. Last week, the bank paid $250 million in fines and compensation after allegations of double-charging consumers, withholding credit card privileges, and opening accounts without customer knowledge.