Bank of America (PAC) said on Tuesday that first-quarter profit fell 18% from a year ago, weakening as a key revenue source, providing the latest example of how even the biggest banks are being challenged by high interest rates.
Bank of America's net interest income fell 3% from a year earlier, “as higher deposit costs outweighed higher asset yields and moderate loan growth,” the bank said in a release.
That measure captures the difference between the amount a bank pays on its loans and other assets and deposits. It is an important contribution to the profitability of all banks.
The other big three banks — JPMorgan Chase ( JPM ), Wells Fargo ( WFC ), and Citigroup ( C ) — have also expressed challenges in this revenue stream, as the Federal Reserve's high long-term interest rates continue to pressure lenders to pay more. Keep their depositors.
One sign of how higher deposit rates are affecting Bank of America is that its non-interest-bearing deposits fell 16% to $520.6 billion. Another is the higher rate paid on U.S. interest-bearing deposits, which rose to 2.53% in the first quarter compared with 1.28% a year earlier.
Bank of America Chief Financial Officer Alasdair Borthwick told analysts that net interest income would be a “low point” in the second quarter and that “we expect growth to pick up in the back half of 2024” – repeating guidance provided earlier.
Compared to the fourth quarter, its net interest income rose and beat expectations. It expects to earn $14 billion from that source in the second quarter, which is more optimistic than the bank indicated in previous guidance.
If the Fed actually pulls back the number of cuts it expects to make in 2024 from its current estimate of three, that could help Bank of America, as higher rates would allow it to charge more for its loans.
“If we have less rate cuts, we will benefit from that,” Borthwick said, adding that “more talk in general is good for banks.”
Shares of Bank of America fell more than 4% in early trading on Tuesday.
Deposit price pressure is mounting at Wells Fargo and Citigroup, which revealed it is spending more on those funds than it did a year ago.
That pressure could intensify now that investors don't expect an interest rate cut from the central bank in June, thanks to warmer-than-expected inflation data last week and a surprisingly resilient economy.
One bright spot for Bank of America is its Wall Street operations.
Revenue for investment banking, trading and wealth management all rose from a year earlier and from the previous quarter, beating analyst expectations.
Trading and wealth management rose more than 2% and 5%, respectively, while investment banking revenue of $1.57 billion was up 35% compared to last year.
“Our wealth management team generated record revenues, client balances and investment banking rebounded,” said CEO Brian Moynihan.
“Bank of America's sales and trading businesses continued their strong 2023 momentum this quarter, reporting their best first quarter in a decade.”
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