Bank of America (BAC) said Tuesday that first-quarter profit fell 18% from a year ago as a key revenue source weakened. This is the latest example of how even the largest banks are increasingly challenged by high interest rates.
Net interest income at Bank of America fell 3% from the same period last year, “as higher deposit costs more than offset higher asset returns and modest loan growth,” the bank said in a news release.
That measure reflects the difference between what a bank earns on its loans and other assets and what it pays out on deposits. It makes a crucial contribution to the profits of all banks.
Three other major banks – JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) – also announced problems with this source of income, as higher interest rates from the Federal Reserve continue to pressure lenders to pay more banks. keep their savers.
Bank of America shares were flat in pre-market trading.
One sign that higher deposit rates are affecting Bank of America is that its non-interest-bearing deposits fell 16% to $520.6 billion. Another reason is the higher interest it paid on US interest-bearing deposits, which rose to 2.53% in the first quarter, compared to 1.28% a year earlier.
Pressure on deposit prices is also increasing at Wells Fargo and Citigroup, which announced they are spending more on that financing than a year ago.
That pressure is likely to increase as investors no longer expect a Fed rate cut in June, following better-than-expected inflation data last week and a surprisingly resilient economy.
A bright spot for Bank of America was its activities on Wall Street.
Investment banking, trading and asset management revenues all rose from a year ago and the previous quarter, exceeding analyst expectations.
Trading and asset management increased by more than 2% and 5%, while investment banking revenues of $1.57 billion were up 35% compared to last year.
“Our wealth management team generated record revenues, with record client balances, and investment banking recovered,” said CEO Brian Moynihan.
“Bank of America’s sales and trading activities this quarter continued their strong momentum into 2023, reporting the best first quarter in more than a decade.”
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