Bank of America (BofA) posted an improved profit return for its quarterly profit for the 4th quarter of 2019, as it recorded more US consumers and improved growth. Many analysts have predicted a low figure because of the impact of lower interest rates. But it seems the bank has done far better than their estimates.
While analysts estimated a net income of $6.3bn in the fourth quarter of 2019, the company realized $7 bn during that period. This is still 4% short of the value realized the same period the previous year, but it’s still higher than the projected amount by analysts. Brian Moynihan, the Bank’s CEO, stated that the performance of the bank is a reflection of solid client activity which has also reflected on the steady growth of the economy.
He also pointed out that the Bank started the year with high expectations and improved work ethics that would impact on the profit margin of the bank before the end of the first quarter of the year. He reiterated that the result of the bank had been replicated by other banks that reported their profit statements this week.
Bank doing well despite lower interest rates
Profitability has increased despite the interest rate update by the Federal Reserve Bank towards the end of last year.
The interest margin of the bank measures the level of profit accrued when the bank lends out depositors’ funds. The interest margin fell from 2.52%to 2.35% last year. Due to its rate-sensitive mortgage securities and large deposit stock, the BofA is seen as the most vulnerable among the big US banks in terms of fluctuations in interest rates.
According to a financial analyst at Wells Fargo Securities, Mike Mayo, the result of BofA came third behind JP Morgan and Citigroup. He reiterated that higher operating expenses hampered impressive loan growth. He pointed out that there’s an improved growth rate in terms of the global economic environment has been a bit favorable for the bank within the past few months.
However, the earnings per share growth of BofA compares favorably with the 69 cents share growth projection by Wall Street. According to Moynihan, the earnings per share growth was a result of share purchases. Also, there was a growth in profit due to securities trading, although the results of rivals outshone BofA’s results.
Fixed-income trading revenues rose by 25%, against 9% growth in investment banking revenue, 4% equities trading revenue, JP Morgan’s 86% growth, 63% growth at Goldman Sachs, as well as 49% growth at Citigroup.
Activities of US Consumers the pivotal growth mechanism
According to the CEO, US consumers helped to improve the overall growth rate of the bank, as consumer loans increased by 7%. Also, debit and credit card spending by consumers rose by 6%, while the consumer net income fell due to lower interest rates.
He made a statement to clients recently, stating that BofA’s theme this year would be a reflection of the lower rates on revenues. According to him, the Bank’s shares have increased by 33% within the past 12 months, while the banking sector rallies.
