Bank of America profits
surge on cost cuts, trading gains
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[January 13, 2017]
By Dan Freed and Sruthi Shankar
of America Corp reported a near-50-percent jump in fourth-quarter
profit on Friday due to cost cuts and higher trading revenue, and its
finance chief forecast sturdy income growth ahead thanks to rising
The Charlotte, N.C.-based lender's earnings surged 47 percent in the
quarter through Dec. 31 to $4.34 billion, or 40 cents a share, from
$2.95 billion, or 27 cents a share, a year earlier.
Excluding items, the bank earned 42 cents per share, beating analysts'
average estimate of 38 cents, according to Thomson Reuters I/B/E/S.
Although Bank of America's overall revenue grew just 2 percent, its
non-interest expenses fell 6 percent, thanks to an aggressive
cost-cutting program that Chief Executive Brian Moynihan put in place
last year. It aims to cut $5 billion from annual operating expenses by
Chief Financial Officer Paul Donofrio cited cost cuts as a driver of the
results. During an earnings call with journalists, he also predicted the
bank would produce an additional $600 million in net interest income
during the first quarter of 2017 due to higher interest rates.
Bank of America is considered to be the most sensitive to interest rate
moves among major U.S. banks because of how its balance sheet is
It was the first big U.S. bank to report earnings since the Federal
Reserve raised interest rates for only the second time since 2006 on
Dec. 14, with JPMorgan Chase & Co and Wells Fargo & Co also reporting on
TRADING A BRIGHT SPOT
Analysts have criticized Bank of America, the second largest U.S. lender
by assets, for being slow to trim costs. Although cost cuts helped
earnings last quarter, the bank still may not have gone far enough to
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A Bank of America ATM kiosk sits in a parking lot in Medford,
Massachusetts, U.S. January 10, 2017. REUTERS/Brian Snyder -
efficiency ratio, a closely watched measure of revenue divided by expenses, was
65.1 percent, compared to a Barclays estimate of 62.9 percent.
Donofrio said the bank was trying to get to a ratio of 60 percent.
bank also indicated first-quarter expenses would be elevated by about $1.3
billion due to retirement-related compensation costs for employees and higher
Trading was a highlight for Bank of America in terms of revenue. The business
benefited from more client activity in the fourth quarter, as bond-market
volumes picked up significantly and U.S. stocks soared following the
presidential election in November.
Its revenue from sales and trading, excluding special items, rose 11 percent to
$2.9 billion from $2.6 billion.
The bank's shares were little changed in premarket trading, having risen 34.8
percent since the election.
U.S. bank stocks have rallied strongly since President-elect Donald Trump's
victory, in anticipation that his policies will boost the economy and loosen
regulations that have hurt bank profits in recent years.
(Reporting by Dan Freed in New York and Sruthi Shankar in Bengaluru; Writing by
Lauren Tara LaCapra; Editing by Ted Kerr and Bernadette Baum)
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