Bank of America returned to profitability in the third quarter, due in part to falling legal costs, but low interest rates continued to squeeze its margins.
The second-largest lender in the U.S. by assets on Wednesday reported third-quarter net income of $4.5 billion, or $0.37 a share, versus a $232 million loss a year earlier when it was hit by big legal charges including an historic $16.65 billion mortgage-securities settlement with the U.S. Department of Justice. Analysts had forecast earnings of $0.34 a share.
BofA’s total revenue fell 2.4% to $20.91 billion on a fully taxable equivalent basis in the quarter ended Sept. 30, but beat the average analyst estimate of $20.77 billion.
Reuters said CEO Brian Moynihan’s cost-cutting efforts had helped the bank mitigate the impact of weak revenue in three of its four main businesses. Consumer banking was the only business to report a rise in revenue as BofA restructured its branch network, grew active accounts and issued more credit cards.
“BofA has been slashing billions of dollars in costs in its commercial lending, investment banking and wealth management businesses as overnight fund rates remain near zero and worries about China’s economy and uncertainty over the timing of a U.S. rate hike prevent traders from making big bets,” Reuters said.
The Wall Street Journal noted that BofA’s net interest margin contracted to just 2.1%, meaning that “even as the bank expands lending and grows its balance sheet, revenue gets squeezed.”
In consumer banking, BofA reported a slight year-over-year rise in earnings, recording $7.8 billion in quarterly sales and a $1.75 billion profit. The firm’s wealth management division posted a slight drop in revenue to $4.5 billion and a 15% drop in profits to $612 million, while in investment banking, BofA reported $4.2 billion in revenues and a profit of $1.3 billion as firm-wide investment banking fees fell by about 15%.
Revenues from the all-important trading division were $4.1 billion, in line with year-ago results, but profits surged nearly threefold to $1 billion, boosted by a 12% rise in equities trading.