Bank of America has today reported a smaller-than-feared 9% drop in quarterly profit, as its interest income was bolstered by a string of rate hikes that helped offset weakness in its investment banking division.
The US Federal Reserve's aggressive move to tighten monetary policy this year in the face of stubborn inflation has given banks more room to raise their prime lending rates.
This has sparked a revival in their interest income, which for years was stagnant due to near-zero rates.
Bank of America holds a large base of consumer deposits, compared with its main rivals, making it more sensitive to any changes in interest rates. Its net interest income jumped 24% in the third quarter.
JPMorgan Chase & Co, Citigroup and Wells Fargo also saw their net interest income rise in the same period.
Excluding items, Bank of America said it earned 81 cents per share for the quarter ended September 30, beating the average analyst estimate of 77 cents per share, according to Refinitiv IBES data.
Shares of Bank of America are down about 29% so far this year.
"Our US consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts," chief executive Brian Moynihan said.
The second-largest US bank's consumer business reported a 12% jump in revenue, helped by higher balances and a rise in interest rates and a 9% jump in combined credit and debit card spend.
The bank, however, added $378m to its loan-loss reserves as it braces for a weakening economy. That compares with a reserve release of $1.1 billion a year earlier.
Its global wealth and investment management segment reported a 2% rise in revenue as average loans and leases grew in the quarter.
Growing fears of an economic slowdown impaired global dealmaking, which retreated from records set last year and saw investment-banking units struggle amid a dearth of appetite for public listings and buyouts. Investment banking fees at the lender fell 46%.
The bank's chief financial officer Alastair Borthwick said on a media call that the bank was happy with its headcount for now and was not planning to cut jobs in the investment banking unit despite a downturn in its underwriting business.
The bank's leveraged loan losses were lower in the third quarter than in the second, Borthwick said.
Peer Citi also wrote down $110m on leveraged loans in the third quarter, down from $126m in the previous quarter.
Bank of America managed to retain its top spot in global leveraged finance this year even as deal volumes in the sector shrank by a quarter to $1.4 trillion, according to data from Dealogic.
It was among the consortium of lenders that took $700m of losses financing the buyout of Citrix Systems as well as canceled efforts to sell debt that financed Apollo Global management's deal to buy assets from Lumen Technologies.
