BofA Posts Record Profit as Higher Rates Fuel Consumer Unit

(Bloomberg) -- Bank of America Corp.’s consumer bankers outdid their colleagues in trading for the second quarter in a row as the company leaned on retail lending to generate record profit.

Net interest income at the consumer unit -- revenue from customers’ loan payments minus what the bank pays depositors -- climbed 9.7 percent in first three months of 2019 from a year earlier, fueled by a rise in loans. That outweighed a 13 percent drop in trading revenue.

The performance echoes that of Bank of America’s bigger competitor, JPMorgan Chase & Co., where NII also rose and trading revenue fell. Consumer banks are reaping the benefits of the Federal Reserve’s four interest-rate increases last year and a relatively buoyant U.S. economy. The first quarter could be the last hurrah for that catalyst as the Fed pauses its rate-tightening cycle and investors prepare for the next recession.

“Economic growth and consumer activity in the U.S. continue to be solid,” Chief Executive Officer Brian Moynihan said in a statement Tuesday. “It was a challenging capital-markets environment, but our team and platform are optimized to serve clients and generate stable revenues across a range of market conditions over time.’’

Average loans in the consumer business climbed 5 percent, the Charlotte, North Carolina-based company said in the statement. Revenue from the unit jumped 7.3 percent to $9.63 billion. The bank’s net interest margin rose to 2.51 percent from 2.42 percent a year earlier.

Chief Financial Officer Paul Donofrio said on a conference call with journalists that the strong economy driving that demand will likely continue.

“We don’t see any evidence of a recession,” Donofrio said. “If a recession were to come, we are very well prepared.”

Trading Slump

Despite the healthy retail performance, Bank of America’s trading and investment-bank results reflected investor caution even after the S&P 500 Index recouped most of its losses from a selloff at the end of 2018.

Trading revenue fell to $3.55 billion, beating analysts’ estimates of $3.49 billion. Investment-banking fees slipped 7 percent to $1.26 billion, compared with analysts’ average estimate of $1.29 billion, suggesting the bank’s efforts to turn around the unit have yet to pay off.

Bank of America shares, up 21 percent this year through Monday, were little changed in early trading.

©2019 Bloomberg L.P.