Bank of America profit drops on lower interest income, outlook lifts shares

Bank of America's second-quarter profit fell as income from interest on loans shrank and provisions for potential credit losses jumped, but a better-than-expected forecast for net interest income sent the bank's shares higher in premarket trade.

Banks are shelling out more on deposits as interest rates are at their highest since 2007, which have boosted returns on bonds, making alternatives such as money market funds more attractive.

The cost of preventing a deposit outflow has eroded banks' gains from the rising interest they are charging borrowers.

Net interest income (NII) - the difference between what banks earn on loans and pay out on deposits - fell 3% to $13.7 billion in the second quarter. Provisions for credit losses rose to $1.5 billion from $1.1 billion a year earlier.

"The strength and earnings power of our leading consumer banking business is complemented by the growth and profitability of our global markets, global banking, and wealth management businesses," CEO Brian Moynihan said in a statement on Tuesday.

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The second biggest U.S. lender earned $6.9 billion, or 83 cents per share, in the quarter ended June 30, compared with $7.4 billion, or 88 cents per share, a year earlier, it said in a statement.

The bank said it expects $14.5 billion in fourth-quarter NII, above LSEG estimates of $14.4 billion, partly due to headwinds from the repricing of mortgage and auto loans.

Shares of the bank climbed 2.2% to $42.80. They have gained 24.4% so far this year, outperforming rivals JPMorgan Chase and Wells Fargo.

Investment banks have brought in more underwriting fees as capital markets resurged. A resilient U.S. economy has encouraged companies to raise capital by selling stocks and issuing bonds in recent months.

Mergers and acquisitions are also gaining momentum, boosting advisory fees for investment banks. BofA's investment banking fees jumped 29% to $1.6 billion, echoing results at peers.

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But the unit faced tougher year-over-year comparisons versus its rivals. In the second quarter of 2023, BofA's investment banking fees grew 7%, while JPMorgan and Citigroup had reported a drop.

BofA's underwriting income jumped 32% in the second quarter of 2024, while fees from syndication surged 77%.

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Its wealth and investment management unit also fetched 6% higher revenue and saw 10% growth in client balances to a record of more than $4 trillion.