Bank of America profit falls on lower customer interest payments

Bank of America’s (BofA) first-quarter profit fell as its consumer division weakened and the lender wrote off more loans, particularly for credit cards.

BofA is among the large lenders, including rival JPMorgan, that are weighing the potential for the US Federal Reserve to cut interest rates this year. The move could crimp banks’ income from interest payments, but could potentially spur economy activity and borrower demand.

BofA’s net interest income (NII) – the difference between what it earns on loans and pays for deposits – slid 3 per cent to US$14 billion in the quarter due to higher deposit costs and modest loan growth.

An uncertain economic outlook and shifting expectations for US interest rate cuts have made it more difficult to predict future profits, banking executives said last week.

If the Federal Reserve keeps rates higher for longer in the coming months, lenders that made bumper profits from rising interest rates in the last two years could build on their gains. But their earnings could diminish if a potential economic slowdown deters borrowers from taking out loans.

The second-largest US lender earned a profit of US$6.7 billion, or 76 US cents a share, for the three months ended March 31, down from US$8.2 billion, or 94 US cents per share, a year earlier. Revenue in Bank of America’s investment banking and wealth management climbed, partially offsetting the decline in interest payments.

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Investment banking fees jumped 35 per cent to US$1.6 billion. Last month, chief financial officer Alastair Borthwick said he expected investment banking revenue to jump 10 per cent to 15 per cent in the first quarter from a year earlier.

Revenue from the segment rose at rival JPMorgan Chase and Citigroup in the first quarter, fuelled by gains in debt and equity capital markets.

On Monday, Goldman Sachs’ profit beat estimates as underwriting, deals and bond trading lifted its earnings per share to the highest since late 2021.

Industry executives have, however, expressed guarded optimism about the nascent dealmaking recovery, despite a resilient US economy, buoyant equities and a flurry of large deals.

Bank of America also took a US$700 million charge in the reported quarter to replenish a government deposit insurance fund, drained by US$16 billion to cover depositors of two banks that collapsed in 2023.

Profit from BofA’s Merrill wealth management division rose about 10 per cent to US$1 billion as rising equity values generated higher fees. The division grew assets under management to US$1.4 trillion from US$1.3 trillion in the fourth quarter. REUTERS