It's a tough time to be a bank, but Bank of America is finding ways to grow
Posted October 16, 2019 7:46 a.m. EDT
CNN — Bank of America's business withstood the slowing economy and tricky interest rate environment better than feared.
The nation's second-largest bank said Wednesday it managed to narrowly grow lending profits despite the recent plunge in interest rates.
Bank of America's results, coupled with JPMorgan Chase's big earnings beat, could help ease recession fears in the United States. Bank of America's stock rose 2% in premarket trading.
Despite concerns about diminished corporate confidence, Bank of America reported a 6% jump in average loans and leases from businesses.
American households also continued to borrow, another positive sign for the economy. Bank of America's consumer banking division reported a 7% jump in loans. Deposits grew by a solid 3%.
Brian Moynihan, Bank of America's CEO, characterized the economy as "moderately growing."
Bank of America's third-quarter profit dropped 21% because of a $2.1 billion impairment charge linked to the termination of a merchant services joint venture. Excluding that charge, Bank of America earned 75 cents a share, topping estimates.
Revenue inched up less than 1%, reflecting the difficult environment for banks. However, that exceeded expectations. Rivals Wells Fargo and Citigroup similarly struggled to grow revenue. JPMorgan, on the other hand, reported an 8% jump in revenue.
Lenders have been hurt by the Federal Reserve's interest rate cuts and the flat yield curve -- the gap between short and long-term rates.
Banks pay out interest on deposits at short rates, while they lend at long rates. They make money off the spread between the two. That gap has vanished in recent quarters. The yield curve even inverted last quarter, meaning long-term bonds had lower rates than short-term ones.
However, Bank of America reported a small increase in net interest income during the third quarter. And the bank's net interest margin fell only slightly.
Bank of America's stock jumped on Tuesday on news that Warren Buffett's Berkshire Hathaway could buy more shares in the bank. Berkshire, already Bank of America's largest shareholder, filed paperwork with the Federal Reserve earlier this month seeking permission to increase its stake above 10%.
Berkshire did not respond to a request for comment on the news, which was first reported by Bloomberg.
Buffett's Berkshire came to Bank of America's rescue in 2011 with a major investment that included warrants to buy common stock. Those warrants were exercised in 2017.