Profits of Bank of America Surpasses Expectations Amid Cost Cuts And Loan Growth

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Photo by Mike Mozart via Flickr

The share price of Bank of America soared in early trading today after the lender released its report on higher revenues and profits as compared to what was expected in the second quarter.

The net income of the company increased to $6.8 billion (£5.1 billion), an increase of 33 percent year-on-year and a full $600 million higher than what various analysts had predicted. While the higher profits were partly driven by tax cuts, the pre-tax income also surpassed the expectations of analysts, coming in at $8.5 billion.

The consumer banking operations of the US banking giant have been improved by higher interest rates from the Federal Reserve together with the consumer loan growth that amounted to five percent.

The revenues, however, dropped by one percent during the quarter as compared to that of last year’s results. It reached $22.8 billion even though it still surpassed the consensus analyst estimates. The revenue numbers included a $793 million gain from the sale of its non-US cards business.

The chairman and chief executive of Bank of America, Brian Moynihan, disclosed that the bank had been able to experience a “solid operating leverage and client activity” while recognising “lower expenses again this period.”

The non-interest costs of the company dropped by five percent to $13.3 billion, helping the company to drive the return on equity of shareholders – a significant measure of profitability – to 10.8 percent, a rise of three percentage points.

Merrill Lynch, the global banking franchise of Bank of America, saw its profits increase by 16 percent to $278 million, even though revenues dropped by two percent due to a worse investment banking fee performance and some changes to rates on “certain tax-advantaged investments.”

The trading revenues in the global markets arm of Merrill Lynch increased by seven percent to $4.2 billion, with “higher sales and trading revenue” reaping benefits for the bank. Trading profits also increased by 34 percent year-on-year.