No rates haul for Bank of America

Bank of America’s expected bonanza from rising interest rates has stalled.

The lender, viewed as the most sensitive to rate changes among US 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 and Wells Fargo — posted increases in the quarter.

CEO Brian Moynihan has been trying to lower investors’ expectations in recent months after earlier predicting income derived from lending and holding securities would soar once the US Federal Reserve (Fed) started hiking 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, the bank said on Tuesday in a statement.

“The quarter was messy,” UBS Group analysts led by Saul Martinez wrote in a note to investors. “We see the results as mixed, with NII [net interest income] underperforming, markets results a bit better than expected and cost performance still good.”

Interest income was hurt by the sale of a UK credit-card business, stagnating long-term interest rates and other “transient factors”, chief financial officer Paul Donofrio said. Net interest margin, the difference between what a bank charges for loans and pays depositors, fell five basis points to 2.34%.

After the Fed raised interest rates in December, Bank of America reported more than $700m in additional net interest income in the first quarter. It lowered guidance for the second quarter to a jump of $150m, even as the US central bank raised rates again in March.

CEO BRIAN MOYNIHAN HAS BEEN TRYING TO LOWER INVESTORS’ EXPECTATIONS IN RECENT MONTHS

Two months ago, Moynihan told investors the increase in interest income would more likely be about $50m because the bank sold the UK unit more quickly than expected and yields have been stubbornly low on long-dated Treasury bonds.

The lender gained 41% from November 8 to Monday, compared with the 28% advance of the 24-company KBW Bank index. Its shares slipped 0.7% to $23.86 at 10am in New York.

Net income rose 10% to $5.27bn, or 46c a share, from $4.78bn, or 41c a year earlier. The average estimate of 24 analysts surveyed by Bloomberg was for 43c a share.