BofA's consumer profit jumps as customers boost borrowing

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U.S. consumers are levering up again, and Bank of America is using that, along with cost cuts, to boost profit.

Bank of America’s consumer unit posted its highest earnings in more than eight years in the second quarter, helping the lender top analysts’ estimates. Loans in that business climbed 6.6% compared with a year earlier, according to a news release Monday, outpacing growth at the company’s three largest rivals.

Total household debt in the U.S. hit a record this year, according to the Federal Reserve Bank of New York. That comes as the Fed raises interest rates, giving banks the opportunity to capture a bigger lending margin while also raising questions about individuals’ ability to keep up with their debt payments.

“Consumer has delivered in the first half,” Chief Financial Officer Paul Donofrio said on a conference call with journalists. “We would expect continued improvement there.”

Dean Athanasia, co-head of the lender’s consumer and small-business operation, said last month that the bank was keeping a close eye on individuals’ debt levels, but so far had seen credit quality remaining at comfortable levels.

Chief Executive Officer Brian Moynihan has been slashing costs to try to match rivals’ profitability. Expenses in the second quarter dropped 5% to $13.3 billion. Moynihan said the company would invest an extra $500 million in technology in coming quarters, some of which came from corporate tax cuts enacted by the Trump administration.

The bank also benefited from a surprise jump in fixed-income trading, as revenue in that business increased 2% to $2.29 billion. Equities trading revenue rose 17%.

Fees from advising on mergers and acquisitions dropped 37% in the quarter, while revenue from that business climbed at JPMorgan Chase and Citigroup.Bank of America has been tamping down risk within its investment bank this year, prompting some dealmakers to feel the firm is missing out on business, Bloomberg reported last month.

Here’s a summary of Bank of America’s results:

  • Net income rose to $6.78 billion, or 63 cents a share, from $5.11 billion, or 44 cents, a year earlier. That beat the 57-cent average estimate of 14 analysts surveyed by Bloomberg.
  • Net interest income climbed 5.2% to $11.8 billion.
  • Net interest margin, the difference between what a bank charges borrowers and pays depositors, fell 1 basis point to 2.38%. Analysts had expected it would remain unchanged.
  • Provision for credit losses fell 1% from the first quarter to $827 million, less than analysts expected, as the ratio of non-performing loans dropped for the third time in the past four quarters.
  • Earnings from cards increased 5.8% to $1.5 billion, higher than a $1.48 billion estimate from Oppenheimer & Co. analyst Chris Kotowski.
  • Bank of America’s overall loans increased to $936 billion, lower than the $943 billion analysts expected.
Bloomberg News