Jump to content

Sign in to follow this  
News Feeds

Bank of America Beats: Earnings Rise 7.3% On Rebound In Capital Markets, Expense Cuts

Recommended Posts

The last big bank to report Q3 earnings in a 48 hour flurry of bank reports was Bank of America, which moments ago announced that it had earned $0.41 in the third quarter, above the $0.34 expected, driven by $21.6 bilion in revenue, which also beat estimates of $20.8 billion, higher by $600 million compared to a year ago period, as a result of a strong rebound in global market earnings which jumped by 34% from $800 million to $1.1 billion as well as a 22% increase in Global Banking from $1.3 billion to $1.55 billion.


Overall, the bank, the second largest in the U.S. by assets, reported a profit of $4.96 billion, up over 7% compared to $4.62 billion in Q3 2015. Shares reacted promptly rising just shy of 2% on the reported earnings.






As has been the case with other banks, global markets staged a substantial rebound, in no small part aided by the deterioration at Deutsche Bank as counterparties took their business elsewhere. Revenue in the bank's Global Markets group increased 20% from 3Q15, driven primarily by improved sales and trading results as well as higher capital markets IB fees.


  • Sales and trading revenue of $3.6B, up 14% from 3Q15; FICC up 32% to $2.6B and Equities down 17% to $1.0B
  • FICC revenue increased $0.8B, or 39%, from 3Q15, due to stronger performance globally across credit products led by mortgages as well as continued strength in rates products and client financing
  • Equities revenue decreased $0.2B, or 17%, from 3Q15, due to lower levels of client activity in cash and derivatives, reflecting lower market volatility
  • Noninterest expense decreased 1% versus 3Q15 as higher revenue-related compensation was more than offset by lower operating and support costs




Helping the bottom line was contuing expense management, as a result of a decline in total Full Time equivalent employees declining from 211,000 to 209,000. Expenses declined 3.3% to $13.48 billion, from $13.94 billion a year ago. CEO Moynihan has made cost cutting a key tenet of his business strategy, and over the summer he promised to cut another $5 billion in annual expenses by 2018. To get to that level, the bank would need to turn in expenses averaging $13.25 billion a quarter.


Total noninterest expense of $13.5B in 3Q16 declined $0.5B, or 3%, from 3Q15, driven by improvements in mortgage servicing costs and broad-based reductions in operating and support costs. Expense was relatively flat versus 2Q16 as general expenseimprovement was mostly offset by an expected increase in FDIC expense. Personnel costs declined 2% from 3Q15, reflecting lower staffing levels, partially offset by higher revenue-related incentive compensation.




Among the core metrics, while loans rose by less than $2 billion sequentially in Q3, deposits jumped by nearly $17 billion.






Looking at the loan book, BofA reported that total net charge-offs declined $97MM from 2Q16, "due to improvements in both consumer and commercial." Net charge-off ratio declined 4bps from 2Q16 to 0.40%; Provision expense of $850MM declined $126MM from 2Q16, driven primarily by commercial. The bank also benefited from a reserve release of $38MM in 3Q16 versus $9MM in 2Q16, while the allowance for loan and lease losses of $11.7B; represents 1.30% of total loans and leases.




Not surprisingly, the bank's primary source of profit, the Net Interest Income, remained pressured, at $10.2 billion in, largely unchanged from Q3 2015 and Q2 2016, as a result of a net interest yield that was unchanged on the quarter. NII increased $0.1B from 2Q16, due primarily to one additional interest accrual day and lower funding costs, partially offset by lower average long-end rates






Overall, a strong quarter for the bank, where neither the loan writedown troubles of Q1 and Q2, nor the sharp drop in trading observed in H1 was present, while a more stable market environment coupled with ongoing layoffs pushed both the top and bottom line to beat reduced expectations.


Full Q3 eearnings presentation below






Continue reading...

Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  


Important Information

Your Privacy Is Important To Us Learn More: Privacy Policy