Bank of America profit beats as consumer unit cushions hit from deals drying up By Reuters

2/2© Reuters. FILE PHOTO: A Bank of America logo is Endorsement foreign exchange dealerpictured in the Manhattan borough of New York City, New York, U.S., January 30, 2019. REUTERS/Carlo Allegri2/2

(Reuters) -Bank of America Corp beat analysts' estimates for second-quarter profit on Monday, with healthy consumer spending and strong demand for loans limiting the hit to its investment banking business.

BofA executives also painted a sunny outlook for consumer spending going forward, allaying fears that decades-high inflation is taking a toll on consumer spending.

"We observed from our data spending remains excellent, deposit balances remain high, capacity to borrow is still there, credit quality is still there," Chief Financial Officer Alastair Borthwick said on a call.

The U.S. Federal Reserve has been hiking interest rates rapidly, in line with its commitment to tame decades-high inflation. Though recession risks persist, the move for now has translated into higher profits for banks, which typically thrive in a high interest rate environment.

Bank of America (NYSE:BAC)'s net interest income, a metric that measures the difference between the interest earned on loans and the amount paid out on deposits, jumped 22%, or $2.2 billion, to $12.4 billion in the reported quarter.

The second-largest U.S. bank by assets also released $48 million of reserves in the quarter, compared with $2.2 billion a year earlier, leaving BofA's total loan loss provisions at $500 million.

That stands in contrast to rival banks JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo (NYSE:WFC) & Co, which boosted loss provisions by $428 million and $235 million, respectively, in the quarter.

Bank of America's shares, which have fallen nearly 28% so far this year, were down marginally in premarket trading.

The company's profit fell 34% to $5.93 billion, or 73 cents per share, for the quarter ended June 30. On an adjusted basis BofA earned 78 cents per share, compared with estimates of 75 cents per share, according to Refinitiv IBES data.

Wall Street investment bankers, who were neck-deep in deals last year, have seen activity slump in the first half of 2022 amid volatility in capital markets, geopolitical tensions and a risk-off sentiment that has swept across markets globally.

Bank of America's investment banking fees fell 47% to $1.1 billion in the second quarter.

Revenue, net of interest expense, rose 6% to $22.7 billion.

SPENDING VS INFLATION

The strength of U.S. consumers is being tested by inflation, which has touched levels not seen in four decades, but spending trends are still largely holding up, bolstering the bank's profit.

"Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels," Chief Executive Officer Brian Moynihan said.

Spending trends are key indicators of the financial health of consumers and are closely intertwined with the performance of BofA's crown jewel, its consumer banking unit, where revenue rose 12% to $9.1 billion in the reported quarter.

Combined credit and debit card spend for the bank rose 11% to $220.5 billion over the immediately preceding quarter. That figure was also up 10% year over year.

BofA's total loans and leases, excluding those from the government's Paycheck Protection Program, grew 14% year-over-year. That figure was also up 4% from the immediately preceding quarter.

However, the Fed's aggressive turn toward bringing down inflation has the outlook for loans in a bind, as rapidly rising costs of borrowing have the potential of hurting demand.

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