Bank of America shares dip after low interest rates squeeze second-quarter revenue

Bank of America shares dip after low interest rates squeeze second-quarter revenue

Bank of America shares dropped after posting second-quarter revenue below analysts’ expectations.

Here’s how the bank did:

Earnings: $1.03 a share, including a one-time $2 billion tax benefit. It wasn’t immediately clear how that figure is comparable to the 77 cents estimate of analysts surveyed by Refinitiv.

Revenue: $21.6 billion, just under the $21.8 billion estimate.

The company said that revenue fell 4% from a year earlier, driven by a 6% drop in net interest income due to lower interest rates. Lower trading revenue and the absence of a $704 million gain a year earlier also hit revenue, the bank said.  

Shares dropped 2.3% in premarket trading.

Bank of America’s results show the impact of falling interest rates on the industry. Banks gather deposits and extend loans; falling interest rates squeeze the margin between what they pay depositors and charge borrowers. CFO Paul Donofrio cited the “continued challenge of low interest rates” in the bank’s earnings release.

Like other lenders, Bank of America set aside billions of dollars for credit losses last year, when the industry anticipated a wave of defaults tied to the coronavirus pandemic. Instead, government stimulus programs appear to have prevented most of the feared losses, and banks have begun to release reserves this year.

The lender said that it had a $1.6 billion boost in the second quarter as it released reserves amid an improved U.S. economic outlook.

Still, given the industry’s sluggish loan growth this year, analysts will want to hear CEO Brian Moynihan’s outlook for loans in the second half. The bank said Wednesday that its book of loans grew in the second quarter for the first time since early 2020.

On Tuesday, JPMorgan Chase and Goldman Sachs each posted results that beat expectations, helped by strong revenue from Wall Street advisory activities.  

Shares of Bank of America have climbed 31% this year before Wednesday, exceeding the 16% gain of the S&P 500 Index.

This story is developing. Please check back for updates.

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