For the eighth consecutive quarter, Bank of America (BAC, Financial) exceeded EPS expectations in Q2. However, high interest rates impacted its net interest income (NII) as increased deposit costs offset higher asset yields. These high rates also reduced demand for loans, including mortgages and auto loans, causing revenue to rise by less than 1%. Consequently, NII and EPS fell by 3% and 6%, respectively.
- In BAC's Consumer Banking segment, competition for deposits in a high interest rate environment led to a 6% decline in deposits as consumers sought higher-yielding products. Despite this, average loans and leases grew by 2% to $312 billion due to higher asset yields.
- From an asset quality perspective, BAC remains solid with net charge-offs relatively flat quarter-over-quarter at $1.5 billion.
- The Global Markets unit was a standout, with revenue increasing by 12% to $5.5 billion. Equities trading revenue surged by 20% to $1.9 billion, while FICC revenue grew modestly by 3% due to a weak trading environment in FX and interest rate products.
- The investment banking business also performed well, driven by the ongoing recovery in the IPO market. Total investment banking fees rose by 29% to $1.6 billion, placing BAC in the #3 spot for investment banking fees in the industry.
- The strong stock market and healthy capital inflows helped BAC achieve record client balances of over $4.0 trillion, up 10%, in its Global Wealth and Investment Management segment.
Overall, there were few surprises as most of BAC's major competitors had already reported earnings. However, the stock is seeing gains following the earnings report, likely due to its Q4 NII outlook of $14.5 billion, reflecting a 4% year-over-year increase, and its expectation for lower net charge-offs in the second half of 2024 compared to the first half.
