Bank Of America Earnings Beat Expectations, Continue Banking Bonanza Earnings Season

Key takeaways

• Bank of America has continued the stellar Q1 earnings report trend with a 15% profit increase
• JPMorgan, Citigroup and Wells Fargo also beat analyst expectations
• All central banks so far have increased their credit default provisions as worries about a recession still hang heavy

It’s another good day for the banking sector as Bank of America’s Q1 earnings report has beaten investor forecasts and becomes the fourth major bank to do so. It’s posted a 15% increase in profit and a 13% push in revenue, boosted by interest rates.

Bank of America, like its peers, also increased its credit default provisions in anticipation of higher interest rates and credit vanishing to create a squeeze on household incomes. We’ve got the latest analysis of the earnings report, Wall Street’s reaction and what the wider banking industry picture looks like.

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What’s the latest from Bank of America?

Bank of America, one of the US’ largest banks, has beat analyst and Wall Street’s forecasts with a 15% profit rise to $8.2 billion. Revenue topped $26.3 billion, a 13% increase and helped by a 25% increase in net interest income which hit $14.4 billion.

CEO and chair Brian Moynihan said in a statement that the results “demonstrate how our company’s decade-long commitment to responsible growth helped to provide stability in changing economic environments”. He also noted that earnings per share were 18% up from last year’s period.

Experts had predicted that Bank of America’s earnings report might be more muted thanks to the makeup of its bond portfolio, which goes down in value when interest rates spike.

Investors had the bank on track for $6.7 billion profit, down from $7.1 billion the same time last year, but revenue was predicted to hit $25.6 billion thanks to a jump in net interest income that other major banks have also seen. Bank of America’s share price was up 1.75% in pre-trading.

Another major player in the banking industry surpassing expectations is further good news for anyone concerned about further bank collapses. March’s collapse of Silicon Valley Bank and Signature Bank, along with First Republic Bank’s $30 billion cash injection, has shone the spotlight on these latest earnings reports to look for any further cracks in the system.

What else has happened in the banking sector?

Goldman Sachs has also released its earnings report today, which was more of a mixed bag. The bank beat forecasts on its Q1 earnings, topping $8.78 a share compared to analyst expectations of $8.14. However, its revenue came in at $12.22 billion which missed the projected $12.76 billion, which is said to stem from its trading division.

“Our deeply rooted risk management culture, strong liquidity and robust capital position enabled us to continue to support our clients and deliver solid performance,” said chairman and CEO David Solomon in a statement. Goldman Sachs shares are down 3.44% in the premarket.

Morgan Stanley will be releasing its figures tomorrow. They probably feel the pressure after seeing peers perform so well, but experts believe the bank is well-poised to withstand economic stress.

The big bang for quarterly earnings season

Last week we saw a hat trick of quarterly success from three banks, giving hope to investors that March’s banking crisis was a one-off rather than a sustained trend. JPMorgan posted a huge 52% increase in earnings, blowing analyst estimates out of the water. CEO Jamie Dimon said it was down to JPMorgan being a “pillar of strength in the banking system”.

Citigroup beat Wall Street’s expectations with $4.6 billion in profit, boosted by its India-based consumer banking business. Wells Fargo also reported a 30% increase in net income, nearing $5 billion, while its net interest income increased by 45%.

It’s safe to say investors were relieved at all three banks beating forecasts. JPMorgan’s share price climbed 7%, while Wells Fargo jumped 3.6%. Citigroup enjoyed an 8% boost in its stock.

But that doesn’t mean every bank out there is celebrating. State Street Bank released its quarterly earnings on Monday after its revenue, net income and earnings per share all fell short of expectations. It was the top loser on the S&P 500, with the stock plunging 14.7% during trading. It’s down 9.63% in 2023 overall.

Is a recession coming?

It’s also worth noting these banks have also been shoring up their credit default provisions in anticipation of a recession. Bank of America confirmed in its latest earning report that it has a $931 million provision for credit losses. JPMorgan has set aside $2.3 billion in the last quarter to cover credit defaults, while Wells Fargo has put aside $1.2 billion for struggling customers who can’t pay their loans.

They’re smart to prepare. Signs are increasingly looking like another Fed interest rate hike is coming after mixed economic data continues to puzzle analysts and inflation remains stubbornly high. It’s possible the banks could tighten lending criteria and negate any reason for further interest rises, but as it stands the Fed could be swayed to increase rates once more in May.

The bottom line

It’s another good day for the banking sector’s earnings, but we’re not out of the clear just yet. While the likes of Bank of America, JPMorgan and others’ bottom lines have benefited from interest rate hikes, they’re prepping for a worst-case scenario: a recession.

But the silver lining of these latest earnings is that the banking system is in better shape than expected just one month after the second and third-largest banking collapses in US history. That means Wall Street can breathe a sigh of relief as no 2008-style collapse looks to be on the cards – for now, at least.

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