BofA Beats On Solid Credit Trends, Interest Income Offset By Trading, I-Banking Misses

Following in the footsteps of JPMorgan on Friday, moments ago Bank of America reported revenue and earnings that beat expectations, with $22.8BN and $0.66 in Q3 revenue and EPS, both above consensus estimates of $22.67BN and $0.62, even as the bank missed on trading, reporting Q3 trading revenue of $3.1BN, below the $3.15BN expected, as equities generated $1.0BN (exp. $1.06BN) while FICC brought in $2.1BN, just above the $2.08BN expected.

Just like Jamie Dimon before him, BofA CEO has upbeat comments about the economy,  noting "... a solid U.S. economy and a healthy U.S. consumer." Indeed, as shown below, consumer lending grew by 6% while the net charge-off ratio was at its lowest in nearly 10 years amid improvement in consumer real estate and energy loan performance, a continuation of the trend observed last week from JPMorgan, Citi and Wells.

Among the other highlights from the quarter, return on average equity was 11%; return on average assets 1.23%; Basel III common equity Tier 1 ratio fully phased-in, advanced approach 11.4%, estimate 11.4%; provision for credit losses $700 million, estimate $969.1 million.

Net interest income disappointed, up 6% to $11.9 billion ($12.0BN on a fully-taxable basis), the highest since 2011, but just shy of consensus estimates which was looking for $12.05 billion for the quarter. The net interest yield of 2.42% increased 6 bps from 3Q17, reflecting the benefits from spread improvement, partially offset by the impact of an increase in lower-yielding Global Markets assets. Excluding Global Markets, the net interest yield was 2.96%, up 13 bps from 3Q17. On the other hand, BofA said it remain positioned for NII to benefit as rates move higher, and disclosed that a +100 bps parallel shift in interest rate yield curve is estimated to benefit NII by $2.9B over the next 12 months, driven primarily by sensitivity to short-end interest rates.

The modest NIM weakness was offset by BofA's decline in provision for credit losses, which was down $118MM, at $716MM, below last year's $834MM and also below the $969MM expected by analysts. The decline echoes the trend observed at both JPM, Citi and Wells Fargo last week.

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