Bank of America 4Q profits fall with lower interest rates

Consumer banking giant Bank of America said Wednesday that its fourth-quarter profits fell 4% from a year ago, as the bank was impacted by the rapid decline of interest rates in late 2019. The Charlotte, North Carolina-based bank said Wednesday that it earned a profit of $6.99 billion, or 74 cents a share, down from a profit of $7.29 billion, or 70 cents per share a year ago. BofA bought back roughly 900 million shares between 2018 and 2019, which is why the per-share earnings rose while the bank's overall profit fell.

Still the bank's profits beat expectations. Analysts were looking for BofA to earn 68 cents per share.

Bank of America, the nation's second-largest bank by assets, is particularly impacted by movements in interest rates since it sells a range of consumer banking products, and its balance sheet is more aligned with short-term bonds and other securities. That made the bank more sensitive to the Federal Reserve's decision last year to cut short-term interest rates three times to shore up the U.S. economy.

The bank's quarterly interest income fell more than $900 million year over year, from $17.84 billion to $16.93 billion. Reflecting the impact of declining interest rates, BofA's net interest margin fell to 2.35%. BofA wasn't the only bank this quarter to be negatively impacted by interest rates. JPMorgan Chase, Citigroup and Wells Fargo, which all reported their results, all reported declines in interest income. Wells Fargo, which has a similar business model to BofA, took a bigger blow than JPMorgan or Citi.

Bank of America Corp beat analysts' estimates for quarterly profit on Wednesday, as a boost from bond trading and growth in its loan book helped the second-biggest U.S. lender blunt a hit from lower interest rates. FILE PHOTO: A Bank of America building is seen in Los Angeles, California, U.S., May 6, 2019. REUTERS/Lucy Nicholson

Bond trading has been a bright spot for big U.S. banks that reported fourth-quarter results this week, largely due to easy comparisons from a year earlier when financial markets were selling off due to concerns over trade and global growth.

Bank of America reported a 25% rise in bond trading revenue, although that was far short of the 86% surge at JPMorgan Chase and Co and a 49% jump at Citigroup Inc.

Loans grew 6% at Bank of America, significantly outpacing increases at Citigroup and JPMorgan. Bank's deposits rose 5%.

"Solid client activity in growing loans and gathering deposits helped us offset spread compression," Chief Financial Officer Paul Donofrio said in a statement.

However, revenue in consumer banking, the bank's biggest business, fell 5% to $9.5 billion, largely due to the three interest rate cuts last year by the Federal Reserve.

The bank's net interest margin, which measures how profitably a bank can lend out depositors' funds, fell to 2.35% from 2.52% a year earlier, and from 2.41% in the prior quarter. Bank of America is the most vulnerable among the big U. S. banks to fluctuations in interest rates because of its large deposit stock and rate-sensitive mortgage securities.