Bank of America Corp posted impressive first-quarter earnings, surpassing analysts’ expectations, as the bank reaped significant interest payments from customers.
Additionally, its bond traders experienced their best quarter in ten years. Other major banks, such as JPMorgan Chase and Co and Citigroup Inc, also enjoyed the benefits of higher interest payments in Q1, while setting aside billions to prepare for a worsening economy.
Bank of America’s CFO, Alastair Borthwick, said on Tuesday that the bank’s results remained strong despite the challenging economic climate marked by market and banking sector volatility. The bank’s shares, however, experienced a marginal decline in turbulent trading.
Impact of lender collapses and consumer behavior
The collapse of two US lenders in March sent shockwaves through the industry, exacerbating fears of an imminent recession. This crisis battered bank stocks and prompted worried depositors to transfer their funds to larger institutions.
Bank of America’s CEO, Brian Moynihan, reiterated his earlier view that a shallow recession would likely begin in Q3 of 2023. He also noted that consumer payments continue to drive the US economy.
Bank of America reported a profit of 94 cents in Q1, higher than the expected 82 cents per share, according to Refinitiv IBES data. David Fanger, Senior Vice President at Moody’s Investors Service, attributed the strong Q1 results to the bank’s higher net interest margin amidst rising deposit costs.
Performance across different sectors
Total deposits at Bank of America fell by 1% to $1.91 trillion in Q1 compared to the previous quarter. This was due to customers moving their funds into money market funds in pursuit of higher yields, as they were unhappy with deposit rates offered by lenders.
On the other hand, fixed income, currencies, and commodities traders remained in high demand, generating $3.5 billion in revenue for the bank, a 27% increase from the previous year.
The bank’s consumer banking unit saw a 21% revenue increase to $10.7 billion in Q1, and its net interest income (NII) rose by 25% to $14.4 billion.
However, Bank of America anticipates a 2% NII decrease in Q2 compared to Q1. Global M&A activity slumped to its lowest level in over a decade in Q1 2023 due to rising interest rates, inflation, and fears of a recession.
This has impacted Wall Street investment banks in recent months, leading to thousands of job cuts. Consequently, Bank of America’s investment banking fees dropped by 20% to $1.2 billion in Q1.
