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July 19, 2017

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Rising interest rates lift BofA’s profits

CONSUMER banking giant Bank of America reported a 10 percent rise in second-quarter profits yesterday as gains from higher interest rates were more than enough to offset a drop in trading revenue.

The Charlotte, North Carolina-based bank said it earned US$5.27 billion, or 49 cents per share, compared with US$4.78 billion, or 43 cents per share, in the same period a year earlier. The results beat analysts’ forecasts of 43 cents a share.

Like its competitors, Bank of America benefited from rising interest rates. The Federal Reserve has raised interest rates three times since December, which has allowed banks like BofA to charge higher interest rates to borrowers when they take out loans.

Because of its large consumer banking division, BofA’s fortunes, as the nation’s second-largest bank by assets, are often more directly tied into interest rates than its rivals JPMorgan Chase, Citigroup and Goldman Sachs, who have much larger trading divisions and are less exposed to short-term interest rates. BofA’s net interest income rose 9 percent in the quarter compared to a year ago to US$10.99 billion.

The rate BofA paid on deposits was unchanged from a year earlier at 0.04 percent, which allowed its profit margins to grow. BofA’s efficiency ratio in its consumer banking division, which measures how much money the bank is spending on overhead, fell from 57 percent to 52 percent. A lower efficiency ratio is a positive thing for a bank.

“Against modest economic growth ... we had one of the strongest quarters in our history,” said BofA Chief Executive Brian Moynihan in a statement.

BofA’s trading desks had a tough quarter. That division reported profits of US$830 million, down 25 percent from a year earlier. Other major banks have said that last quarter’s quieter market conditions kept traders on the sidelines, which in turn kept a lid on trading revenue. The pain was particularly felt in BofA’s fixed-income trading division, where revenue fall 14 percent.

BofA’s balance sheet also improved in the quarter. The bank set aside less money to cover potentially bad loans and the percent of consumer loans it charged off in the quarter fell to its lowest level in more than 10 years.


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