US economy

Bank of America: well Fed


No big US bank has done better under Donald Trump than Bank of America. Since the president’s election victory almost two years ago shares in the Charlotte-based lender are up about 67 per cent, more than twice the rise of S&P financials. That’s $117bn of market capitalisation, or one and a half Morgan Stanleys.

Brian Moynihan, the bank’s lugubrious chief executive, has said the key is “ responsible growth,” stressing a determination to keep a lid on costs and avoid the kind of excesses that drove Countrywide and Merrill Lynch into the ground a decade ago. BofA’s third-quarter results on Monday showed record pre-tax profits for a single period, thanks in part to a small fall in operating expenses and a tiny rise in charge-offs.

But the seven interest rate increases from the Federal Reserve since November 2016 have really transformed the bank’s outlook. BofA benefits more than any other big bank from higher base rates, as it has a relatively short-dated securities portfolio that can roll over more rapidly into higher-yielding instruments. It also has a vast consumer deposit base, where rates rise much more slowly than on floating-rate assets such as credit-card balances.

For all the hand-wringing over BofA’s investment bank, interest rates are what really matter. Net interest income came to $11.87bn for the quarter, 6 per cent higher than in 2017 and 16 per cent up on 2016. That NII haul was almost 10 times BofA’s fees from advising companies.

BofA is not the only bank benefiting from rate rises. Wells Fargo, for example, saw its average deposit cost rise 21 basis points from a year earlier — a fraction of the 100bp change in the Fed funds rate over that same period.

But BofA sounds more bullish than peers, suggesting on Monday’s call with analysts that the bank could see off a growing competitive threat from online rivals. For now, NII keeps climbing. And it is Fed chair Jay Powell, more than Mr Moynihan, making BofA great again.

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