Bank of America crushes earnings on trading surge; shares rise

Bank of America on Monday reported third-quarter earnings that beat on both the top and bottom line, the first rise in profit in three quarters helped by strong bond trading revenue. Shares rose in premarket trade.

The bank posted earnings of 41 cents a share on revenue of $21.64 billion. Profit of $4.45 billion represented a 6.6 percent gain from a year ago.

Wall Street analysts had expected Bank of America to report earnings of 34 cents a share on revenue of $20.96 billion, according to a consensus estimate from Thomson Reuters.

Bank of America reported a 14 percent rise in sales and trading revenue, helped by a 32 percent jump in fixed income trading revenue. Revenue from equities trading fell 17 percent.

“I think this probably raises the bar a bit for sales and trading revenues going forward,” Jeffery Harte, principal, Sandler O’Neill, said on CNBC’s “Squawk Box.” But he wouldn’t extrapolate such strong performance to future quarters.

Stronger trading revenue helped JPMorgan Chase and Citigroup on Friday post better-than-expected earnings. Loan growth was also solid.

However, Bank of America’s return on average common equity was 7.3 percent, below the 10 percent general yardstick for cost of capital.

“Strong client activity and good expense discipline combined to drive positive operating leverage as we continue to optimize and strengthen our balance sheet. 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,” Chief Financial Officer Paul M. Donofrio said in the earnings release.

“We remain focused on delivering long-term value to shareholders,” he said. “This quarter, we increased tangible book value per share by 11 percent while returning nearly $2.2 billion in capital to common shareholders.”

Shares of Bank of America were higher but volatile, rising more than 1.5 percent in premarket trade following the earnings release.

Average total loans and leases rose 3 percent year-over-year, while average total deposits climbed 6 percent, the bank said in a presentation.

Net interest income rose $0.3 billion from the third quarter last year to $10.2 billion, the bank said.

The third quarter results are the first to reflect the bank’s discontinued use of an accounting method known as FAS 91. The change was expected to reduce volatility in net interest income, the difference between income from interest on assets such as mortgages and the interest the bank pays on its liabilities such as customer savings accounts.

Use of the method had resulted in a roughly $1 billion downward adjustment to Bank of America’s income in the second quarter. The bank said in late September it was changing the accounting practice, effective in the third quarter of this year.

In early October, the bank announced its head of global wealth and retirement solutions, Andy Sieg, will become head of Merrill Lynch Wealth Management at the end of the year when John Thiel steps down. Thiel will become vice chairman of global wealth and investment management beginning Jan. 1, 2017.

Over the last three months, financials themselves are the second-best performers in the S&P 500. But the sector has struggled the whole year with moderate economic growth, lowered expectations for a U.S. Federal Reserve rate hike and one of the worst starts to a year for the U.S. stock market.

—Reuters contributed to this report.

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