Bank of America’s lagging loan growth overshadows profit gains

NEW YORK: Bank of America Corp’s loan growth lagged rivals and fees from advising on deals and underwriting bonds fell in the third quarter, sending its share price 1.7 lower even as profit beat expectations.

The No. 2 US bank’s profit rose 35 per cent, helped by cost controls, but investors focused on the underlying businesses.

“It was definitely a surprise when some of the other banks had better-than- expected loan growth,” said R. J. Grant, head of trading at Keefe, Bruyette & Woods.

Bank of America’s total loan book grew 0.3 per cent to US$ 930 billion during the third quarter compared with the year- ago period.

Declines in mortgages and loans to customers of its markets business offset gains in consumer banking, wealth management and commercial loans.

By contrast, JPMorgan Chase & Co reported a 6 per cent rise in loans and Citigroup Inc reported a 4 per cent increase.

Bank of America shares were 48 cents lower at US$ 27.98 shortly after midday.

The fees it generates from advising on mergers dropped 26 per cent in the quarter, as did those from underwriting bond offerings. Its sales and trading revenue fell 5 per cent.

On a conference call with reporters, chief financial officer Paul Donofrio said Bank of America is working to repair its M&A business after losing market share.

At year- end Matthew Koder takes over as head of the corporate and investment bank from Christian Meissner, who announced his plans to leave last month.

“I know we can do better,” said Donofrio.

Still, third-quarter profit showed the rewards of cost controls chief executive officer Brian Moynihan has put in place.

By reducing staff, closing unprofitable branches and putting old technology systems to rest, it has eliminated billions of dollars from its annual expenses.

Lenders in general are benefiting from a strong US economy. Rising interest rates, lower taxes, buoyant deposits and healthy loan demand have boosted the industry this year, with some big banks reporting record profits quarter after quarter.

Bank of America’s third-quarter profit jumped to US$ 6.7 billion from US$ 5 billion a year earlier.

Excluding special items, the bank earned 67 cents per share, compared with an average analyst estimate of 62 cents per share, according to data from Refinitiv.

“Overall trends continued to look strong,” Citigroup analyst Keith Horowitz said in a report. “Underlying core results (are) not necessarily as strong as headline number though.” — Reuters