Revenue slips but earnings top expectations

Bank of America missed revenue expectations in the first quarter, but its earnings still beat forecasts as the bank chopped its expenses and expanded its loan book.

The second-biggest US banking group by assets followed rival domestic lenders by struggling to generate top-line growth in the latest quarter when its trading revenue fell.

The bank’s share price eased 0.6% to $29.65 in premarket trading.

Lower market volatility and its negative effect on trading held bank capital markets revenue at US banks during the first quarter. That has left many banks relying on expense cuts to drive profitability.

JP Morgan & Co, the biggest US bank by assets, was the exception, increasing revenue and beating earnings expectations as its expenses rose with investment in new technology.

Bank of America reported that revenue, net of interest expense, slipped to $23bn from $23.1bn a year ago, a number below analysts’ expectations of $23.3bn.

The bank had 3% growth in consumer loans and 4% growth in loans to businesses in the first quarter, enabling it to capture more revenue from higher US interest rates.

It posted a 5% increase in deposits from a year earlier. Revenue rose in two of the lender’s four main businesses.

CFO Paul Donofrio said growth in deposits and loans suggested the performance of the US economy remained solid despite recession concern. “Bank of America has demonstrated for years now that we can grow well in an economy that is just growing moderately, even if it is slowing,” he told reporters.

The company benefited from the central bank’s four rate hikes in 2018, while a strong job market kept bad loans in check and borrowing healthy.

The bank relies heavily on higher interest rates to maximise profits as it has a large deposit pool and rate-sensitive mortgage securities.

Net interest income the difference between what a lender earns on loans and pays on deposits rose 5% to $12.38bn. Average deposits rose nearly 5% to $1.36-trillion.

However, the bank’s trading desks, like those of its peers, have had a slow start to the year because of the US government shutdown and lower volatility.

Changes in the US tax code and concern about a trade war spurred more trading a year ago.

Overall trading revenue fell 17%. Equities trading revenue fell 22% and fixed-income trading revenue 8%.

Advisory fees at Bank of America stayed flat, indicating the bank is missing out on the M&A boom lifting rival investment banks. On Monday, Goldman Sachs Group reported a 51% surge in advisory fees.

Net income applicable to common shareholders rose 6% to $6.87bn.

Excluding one-time items, the bank earned 71c per share, beating the 66c per share analysts had on average expected, according to IBES data from Refinitiv.