Bank of America Corp.’s expected bonanza from rising interest rates has stalled.
The lender, viewed as the most sensitive to rate changes among U.S. banks, reported a surprise drop in net interest income in the second quarter, after a 7% jump in the first three months of the year. Its two largest rivals — JPMorgan Chase & Co. and Wells Fargo & Co. — posted increases in the quarter.
CEO Brian Moynihan has been trying to lower investors’ expectations in recent months after earlier predicting that income derived from lending and holding securities would soar once the Federal Reserve started raising interest rates. Even with the decline in interest income, second-quarter profit climbed from a year earlier as credit quality improved and trading was stronger than expected.
Interest income was hurt by the sale of a U.K. credit card business and stagnating long-term interest rates. Net interest margin, the difference between what a bank charges for loans and pays depositors, fell 5 basis points to 2.34%, the Charlotte, N.C.-based bank said Tuesday in a statement.
After the Fed raised interest rates in December for the first time in nearly a decade, Bank of America reported more than $700 million in additional net interest income in the first quarter. It lowered guidance for the second quarter to a jump of $150 million, even as the U.S. central bank raised rates again in March. Two months ago, Moynihan told investors the increase in interest income would more likely be about $50 million, because the bank sold the U.K. unit more quickly than expected and yields have been stubbornly low on long-dated Treasury bonds.
Investors have pushed up shares of Bank of America more than any other giant U.S. lender since Donald Trump’s election, betting it’s poised for brighter days. The firm has gained 41% since Nov. 8, compared with the 28% advance of the 24-company KBW Bank Index. The lender’s shares slipped 0.9% to $23.80 at 7:06 a.m. in early trading in New York.
Net income rose 10% to $5.27 billion, or 46 cents a share, from $4.78 billion, or 41 cents, a year earlier, according to the statement. The average estimate of 24 analysts surveyed by Bloomberg was for 43 cents a share.
Total revenue climbed 7% to $22.8 billion from a year earlier, exceeding analysts’ expectations of $21.8 billion. Expenses increased 1.7% to $13.7 billion, compared with estimates of $13.6 billion.
The bank generated $11.2 billion in net interest income, using the adjusted figure analysts tend to prefer to show fully taxable equivalence. That was down from the first quarter and missed analysts’ estimates of $11.3 billion.
The lender is the fourth of the six big U.S. banks to post results, with JPMorgan Chase & Co. and Citigroup Inc. beating predictions, and Wells Fargo & Co. coming up short. Goldman Sachs Group Inc. is scheduled to report later Tuesday, with Morgan Stanley scheduled for Wednesday.
