Bank of America's fee income makes up for margin challenges in 3Q

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Bank of America posted the biggest jump in investment banking fees on Wall Street, helping profit overcome headwinds from lower interest rates.

However, the bank broke its four-quarter streak of record profits as it took a $2.1 billion impairment charge tied to the end of its payments joint venture with First Data Corp. Net income fell to $5.8 billion as the bank generated an 11% return on equity excluding the charge.

Bank of America’s net interest income — revenue from customers’ loan payments minus what the company pays depositors — rose 1% to $12.3 billion in the third quarter, matching the average estimate in a Bloomberg survey.

Still, third-quarter debt underwriting fees unexpectedly surged 19%, and the firm’s fixed-income traders eked out a slight increase, pushing profit above analysts’ estimates. Its gains in advisory fees also surpassed rivals in the best quarter for the investment bank in more than two years.

The 27% increase in fees shows progress by the bank’s new corporate and investment-banking chief, Matthew Koder, who’s overhauling the unit after executives admitted last year they had pulled back too much on risk. He has reinvigorated efforts to clinch more midsize transactions in the U.S. and has been adding dozens of bankers across the division.

Chief Executive Brian Moynihan has expressed confidence in the U.S. economy even as the Federal Reserve cuts interest rates and growth estimates are revised down. Lower borrowing costs are a major headwind for banks, while concerns about a global economic slowdown and trade tensions stymie client activity.

Bank of America shares advanced 1.5% to $30.17 in early trading in New York at 7:07 a.m. They gained 21% this year through Tuesday, compared with a 17% increase for the KBW Bank Index.

JPMorgan Chase & Co. on Tuesday posted a surprise jump in revenue from investment banking, as well as the biggest increase in fixed-income trading revenue in almost three years. But Goldman Sachs Group reported a bigger drop in investment banking fees than analysts had predicted, down 15% from last year’s third quarter.

Other key results:

  • The efficiency ratio, a measure of profitability, matched last year’s 57% excluding the charge.
  • Debt-underwriting fees of $816 million were more than the $673 million expected by analysts surveyed by Bloomberg.
Bloomberg News