Bank of America Corp. reported a better-than-expected 30 percent jump in quarterly profit on Wednesday, driven by loan growth as well as record-breaking M&A volumes that helped drive its investment banking business, sending its shares up 1.9 percent.
Flush with cash and emboldened by soaring stock market valuations, large buyout funds, corporates, and financiers struck billions of dollars worth of deals in the fourth quarter, generating record advisory fees of $850 million for BofA, up 55 percent from a year earlier.
A recovery in consumer spending on credit and debit cards and a strong performance in the bank’s trading and advisory business also helped bolster profit.
Average loans and leases, excluding those from the government-backed Paycheck Protection Program (PPP), grew 3.4 percent from the previous quarter and 3.2 percent from the year-earlier period, driven by strong commercial loan growth and higher card balances.
That compared with a 6 percent rise in average loans at JPMorgan Chase & Co. In contrast, Wells Fargo & Co. reported a 3 percent drop, although it noted positive trends to the upside in the final six weeks of 2021.
“(Loan growth) is very consistent. It is very broad based -across global markets, wealth and consumer. It is hard to see that trend being interrupted right now,” Bank of America Chief Financial Officer Alastair Borthwick said on a call with reporters.
“There is a lot there in terms of … stored potential for future loan growth.”
Combined spending on credit and debit cards grew 22 percent to $212 billion in the latest quarter.
Overall, profit rose to $6.77 billion, or 82 cents per share for the quarter ended Dec. 31, beating analyst estimates of 77 cents per share, according to the IBES estimate from Refinitiv.
The bank reported revenue, net of interest expense, of $22.1 billion, up 10 percent from a year earlier.
Bank of America’s net interest income (NII)—a metric that measures the difference between the interest earned on loans and paid out on deposits—rose nearly 11 percent to $11.41 billion, helped by significant growth in loans and deposits.
Borthwick also projected robust NII growth for 2022 compared with last year.
“That assumes rising rates in the forward curve and loan momentum,” he said.
Revenue from the bank’s equities division was up 3 percent in the quarter, while that from fixed income trading was down 10 percent as stock prices continued to soar despite temporary hiccups from the Omicron coronavirus variant and a hawkish Fed.
Bank of America also released $851 million from its reserves for pandemic-related losses that did not materialize.
Non-interest expenses rose 6 percent, driven by higher revenue-related compensation.
Bank of America, like other big investment banks and wealth managers, saw higher expenses from bonuses and other revenue-based compensation as bankers and financial advisers made the most of the capital markets activity in the second-half of the year.
Unlike its peers, Bank of America said it was expecting its expenses to be flat for 2022 compared with 2021 based on estimations that some costs related to the pandemic will ease this year.
“What’s going to come out over time are some of the stubborn COVID costs,” Borthwick said on the call.
For example, Borthwick said it currently costs more than usual to run a branch. That is in part because of the cost of masks, hand sanitizer, new ventilation systems, extra cleaning, and, occasionally, additional benefits for frontline workers.
Also, Borthwick said the bank expects additional cost savings from more customers using digital banking.
Evercore ISI analyst Glenn Schorr said Bank of America’s expectations for flat expenses this year make it exceptional among its peer group because others have so far projected expenses will rise in 2022.
Morgan Stanley also beat quarterly profit expectations on Wednesday, capping a mixed earnings season for the nation’s largest banks.