Bank of America profits drop as key lending revenue weakens

Bank of America (BAC) said Tuesday that first-quarter profits dropped 18% from a year ago as a key revenue source weakened, offering the latest example of how even the biggest banks are increasingly challenged by high interest rates.

Net interest income at Bank of America fell 3% from the year-earlier period “as higher deposit costs more than offset higher asset yields and modest loan growth,” the bank said in a release.

That measure captures the difference between what a bank earns on its loans and other assets versus what it pays out on deposits. It is a critical contributor to profits for all banks.

Three other giant banks — JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) — also disclosed challenges with this revenue source as higher-for-longer interest rates from the Federal Reserve continue to pressure lenders to pay more to keep their depositors.

Bank of America’s stock was flat in pre-market trading.

One sign of how higher deposit rates are affecting Bank of America is that its non-interest bearing deposits fell 16% to $520.6 billion. Another is the higher rate it paid on US interest-bearing deposits, which rose to 2.53% in the first quarter compared with 1.28% a year earlier.

Deposit pricing pressure is also rising at Wells Fargo and Citigroup, which disclosed they are shelling out more for that funding than a year ago.

That pressure is likely to intensify now that investors no longer expect a rate cut from the Fed in June, due to hotter-than-expected inflation data this past week and a surprisingly resilient economy.

Bank of America Chairman and CEO Brian Moynihan. REUTERS/Evelyn Hockstein (REUTERS / Reuters)

One bright spot for Bank of America was its Wall Street operations.

Revenue for investment banking, trading and wealth management all rose from a year ago and the previous quarter, outperforming analyst expectations.

Trading and wealth management rose more than 2% and 5% while investment banking revenue of $1.57 billion was 35% higher compared with last year.

“Our wealth management team generated record revenue, with record client balances, and investment banking rebounded,” said CEO Brian Moynihan.

“Bank of America’s sales and trading businesses continued their strong 2023 momentum this quarter, reporting the best first quarter in over a decade.”

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