Bank of America Profit Boosted by Fixed Income Trading

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Bank of America Corp. (NYSE: BAC) reported third-quarter results before markets opened Monday. The most heavily traded of the big bank stocks reported diluted earnings per share (EPS) of $0.41 on revenue of $21.64 billion. In the same period a year ago, it reported EPS of $0.38 on revenue of $20.99 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.33 on $20.94 billion in revenue.

Credit loss provision totaled $850 million in the quarter, up by $44 million compared with the same period in 2015. Net charge-offs declined by $44 million (4.7%) to $888 million. The drop in net charge-offs was attributed to improvements in both consumer and commercial banking.

Non-interest expense dropped 3% to $13.5 billion. Litigation expenses increased from $231 million in the third quarter of last year to $250 million.

The bank did not provide guidance in its earnings release. The consensus estimate for fourth-quarter EPS is $0.36 on revenues of $20.71 billion. For the full year, the consensus calls for EPS of $1.28 on revenues of $82.86 billion.

The bank’s net interest margin increased by four basis points year over year, from 2.19% to 2.23% as net interest income rose from $9.9 billion to $10.2 billion. Bank of America attributed the increase to benefits from loan growth, higher short-end rates and increased debt securities balances that offset the decline from lower long-end rates.

The bank’s sales and trading revenues rose 14% year over year and 1.7% sequentially, which Bank of America attributed to stronger performance globally across credit products led by mortgages, as well as continued strength in rates products and client financing. Fixed income revenues rose 32% while equity revenue declined 17%. The bank attributed the drop in equity revenue to lower levels of client activity in cash and derivatives, reflecting lower market volatility. Excluding debt valuation adjustment, its fixed income revenues rose 39%.

Bank of America reported lower estimated Basel III Tier 1 transition common ratio of 11%, down from 11.6% in the third quarter of last year. The bank also raised its tangible book value per share by $1.64 to $17.14.

Shares traded higher by about 1% in the premarket Monday, at $16.15. The current 52-week range is $10.99 to $18.09. Thomson Reuters had a consensus analyst price target of $17.61 before the results were announced.