Bank of America (BAC, Financial) joined its banking peers JPMorgan Chase (JPM, Financial), Wells Fargo (WFC, Financial), and Citigroup (C, Financial) in feeling the pinch from higher interest rates, as evidenced by its first-quarter earnings report. Despite narrowly beating Q1 earnings expectations, BAC saw a year-over-year decline in earnings per share (EPS) by about 12% to $0.83, primarily due to a 3% drop in net interest income (NII). Looking ahead, BAC projects a slight decrease in NII to $14.0 billion in Q2, down approximately 1.5% year-over-year, but anticipates a recovery in the latter half of the year.
The impact of rising interest rates was notably harsh on BAC's Consumer Banking segment:
- Average deposits fell by 7% year-over-year to $952 million, driving down the capital available for lending.
- Consumer Banking revenue decreased by 5% to $10.2 billion.
- Despite a 3% increase in average loans and leases to $313 billion and a 5% rise in credit and debit card spending to $219 billion, net income in Consumer Banking dropped by 4%.
However, there were some positive developments:
- Investment banking fees surged by 35% year-over-year to $1.6 billion, thanks to a rebound in the IPO market and a gain in market share, positioning BAC as the third-largest in investment banking fees.
- The Global Wealth and Investment Management segment reported record revenue of $5.6 billion, buoyed by a 12% increase in asset management fees and positive client flows of $25 billion.
Despite these highlights, the overall performance of Bank of America in the first quarter was mixed, with the detrimental effects of higher interest rates taking center stage.
