Bank of America Reports Big Jump in Profit on Higher Interest Rates

The Numbers

Bank of America reported a profit of $7.4 billion last quarter, up nearly 20 percent from the year before.

Revenue grew more than 10 percent, to $25.2 billion in the second quarter.

Bank of America holds nearly $2 trillion in customer deposits, but like most banks, it is seeing declines as customers move their money to accounts with higher returns: The bank’s average deposits dropped around 7 percent in the second quarter, versus a year ago.

The bank also continued to make progress on a goal it laid out earlier this year: shrinking its head count through attrition. The bank, which had 288,000 employees in 2010, is now down to about 213,000 (excluding summer interns), roughly 4,000 fewer than a quarter ago. “That sets us up for a good trajectory on expense going forward,” said Alastair Borthwick, the bank’s chief financial officer.

Takeaways

Brian Moynihan, the bank’s chief executive, called the quarter one of the strongest in the bank’s history.

“We continue to see a healthy U.S. economy that is growing at a slower pace, with a resilient job market,” he said. That echoed comments from his counterparts at other big banks, and comes as economists debate the likelihood of a so-called soft landing, in which inflation subsides without large job losses or a significant slowdown in economic growth. Customer spending on credit and debit cards rose 3 percent, to $226 billion, the bank said.

Notably, the lender’s investment-banking business rebounded in the second quarter, after a sharp drop in deal-making had cast a chill over the industry. The investment banking unit’s fees rose 7 percent, to $1.2 billion, and its trading revenue rose 3 percent, to $4.3 billion.

“That’s probably the most important highlight of the quarter, I think, in the global banking business,” Mr. Borthwick said. “We’ve got a little bit of pick up in equity capital markets, and that’s been a welcome sign for us.”

Context

America’s four largest banks — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — have now reported nearly $30 billion in profit for the second quarter, up more than 30 percent from a year ago.

But large penalties for misdeeds remain a routine expense at the biggest banks. Last week, Bank of America was fined $150 million by two federal regulators for charging its customers improper fees and denying them promised sign-up bonuses. The bank reported $276 million in litigation costs last quarter, up from $89 million the previous quarter, “driven by agreements reached on consumer regulatory matters.”

Banks are also bracing for a bill for the failures this year of three regional banks. Bank of America said its expenses in the second half of this year could include a $1.9 billion accrual if the Federal Deposit Insurance Corporation finalizes an assessment on banks to cover the costs of protecting failed banks’ uninsured deposits.

What’s Next

Analysts will be closely watching results on Wednesday from Goldman Sachs, which has struggled to recover from an ill-fated foray into consumer banking. They’ll also scrutinize smaller banks like Western Alliance as those lenders’ leaders try to shake off the effects of the bank failures this year that threw the entire regional banking sector into turmoil.