Bank of America Corp. boosted its forecast for interest income after reporting that fourth-quarter profit rose 43% on improvements in credit quality and continued cost-cutting.
Net interest income is expected to increase by about $600 million in the first quarter, Chief Financial Officer Paul Donofrio said Friday on conference call with analysts, helped by the Federal Reserve's quarter-point rate hike in December. The Charlotte, North Carolina-based lender said revenue from interest-related products rose 6.3% to $10.3 billion in the fourth quarter.
Fixed-income trading revenue climbed to $1.96 billion, the company said in a statement, missing analysts' $2.1 billion average estimate. While mortgage-bonding trading was strong, there was less activity municipal debt and government securities, Donofrio said on a call with journalists. Equity trading rose 11% to $948 million, in line with analysts' predictions.
Bank of America shares advanced 1.4% to $23.25 at 10:18 a.m. in New York. The stock has gained 37% since Nov. 8 — the most among large U.S. lenders — as President-elect Donald Trump's victory fueled investor expectations that financial firms would benefit from rising interest rates and relaxed regulation.
"Management's guidance was more positive than what is in our forecast, so we believe the stock will outperform on a relative basis," Keefe, Bruyette & Woods analysts led by Brian Kleinhanzl wrote in a note to clients.
Chief Executive Officer Brian Moynihan has been cutting costs for years while contending with persistently low interest rates. That's starting to pay off as Wall Street firms benefit from a rebound in fixed-income trading and the company moves beyond epic legal claims over mortgages that soured in the financial crisis. The bank last year set a target of $53 billion in annual expenses by the end of 2018, or about 8% less than 2015.
Tax Benefit
Net income rose to $4.7 billion, or 40 cents a share, from $3.28 billion, or 27 cents, a year earlier. The results were helped by a net tax benefit of about $500 million. Earnings per share — excluding the tax benefit and accounting adjustments — were 37 cents. The average estimate of 29 analysts surveyed by Bloomberg was for adjusted earnings of 38 cents a share.
Total revenue increased 2.1% to $20 billion, missing estimates by about $800 million. Expenses fell 6%, more than expected, to $13.2 billion, helped by declines in compensation and data-processing costs.
