The second-largest US bank, Bank of America (BAC), saw a 10% increase in third-quarter earnings compared to the same period last year because to increased interest income and solid Wall Street performance.
It revealed $25.2 billion in revenue and $7.8 billion in profits, a 3% increase over the previous year. The difference between the amount it receives from loans and the amount it pays for deposits is known as net interest income, and it increased by 4% annually.
Revenues from trade and investment banking increased as well, suggesting that a decline in dealmaking is beginning to thaw.
The way Bank of America has performed this year in comparison to its competitors has drawn the attention of investors. Its shares fell to a three-year low in October, and since the start of the year, it has lagged behind JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC).
Stocks of Bank of America increased 2.3% on Tuesday.
The third quarter earnings of its competitors increased as well, mostly as a result of growing interest income.
Investors are worried about how Bank of America’s investment portfolio is doing, though, given this prolonged era of high interest rates.
The choice to invest hundreds of billions in longer-dated Treasurys and mortgage bonds in the early stages of the epidemic, when banks were flooded with fresh deposits, is being funded by Bank of America.
Since the Federal Reserve started rising interest rates, the value of those holdings decreased, which means the bank is receiving less money from its investments.
As of June 30, it had accumulated paper losses on those debt instruments of over $109 billion; by the end of the third quarter, that amount had increased to $136 billion.
Analysts believe Bank of America won’t need to declare a loss on the securities due to lack of necessity.
Additionally, there were indications from Bank of America that several of its clients are experiencing difficulties due to rising borrowing expenses. Net charge-offs increased by 79% to $931 million over the same time last year. Its reserves for potential loan losses increased as well.
Alastair Borthwick, the bank’s CFO, also advised against holding out hope for a fresh investment banking boom.
That confidence hasn’t necessarily returned to the stock capital markets in the same sense as of yet, he added. “People may not have made the decision to do their company’s IPO at this time. Though it has increased over the last few quarters, we still haven’t entirely recovered to that level of assurance.”