Strategy

BofA Crushes Estimates With 6.6% Profit Gain

A surge in trading revenue and cost-cutting efforts boosted the bank's Q3 bottom line despite stubbornly low interest rates.
Matthew HellerOctober 17, 2016
BofA Crushes Estimates With 6.6% Profit Gain

Bank of America on Monday reported its first profit increase in three quarters, benefiting from a surge in trading revenue and its cost-cutting efforts.

The bank’s top and bottom lines beat analysts’ estimates as profit rose 6.6% to $4.45 billion, or 41 cents a share, and revenue increased 3% to $21.64 billion. Analysts had expected earnings of 34 cents a share on revenue of $20.96 billion.

Total trading revenue came in at $3.60 billion, up 14%, driven by a 39% gain in fixed income, currency, and commodities revenue that reflected stronger performance in credit products, especially mortgages.

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“Strong client activity and good expense discipline combined to drive positive operating leverage as we continue to optimize and strengthen our balance sheet,” CFO Paul M. Donofrio said. “With near-record levels of capital and liquidity, as well as robust underwriting standards, Bank of America is stronger, safer and better prepared to deliver for customers and clients than probably at any time in our history.”

As Reuters reports, BofA’s “large stock of deposits and rate-sensitive mortgage securities make it particularly dependent on a rise in interest rates to boost profits.” But amid stubbornly low interest rates, CEO Brian Moynihan has made trimming costs a top priority, saying in July he would cut annual expenses by another $5 billion by 2018.

To get to that level, BofA would need to turn in non-interest expenses averaging $13.25 billion a quarter, The Wall Street Journal said. In the third quarter, expenses declined 3.3% to $13.48 billion as the bank shed more than 6,000 jobs and 100 branches.

The efficiency ratio, which measures a company’s expenses in the context of its overall revenue, was 61.7%, meeting Moynihan’s goal of getting the metric down to the low 60s.

In BofA’s other divisions, investment-banking revenue rose 13%, with higher debt and equity issuance activity offsetting lower advisory fees, but equities revenue fell 17% because of lower client activity in cash and derivatives.

BofA “continues to make lots of progress towards the things that matter like credit quality, loan growth, and building and returning capital,” SeekingAlpha said.