Bank of America Corp., the third- biggest U.S. bank by assets, said second-quarter net income climbed 23 percent as it sold more mortgages and credit cards.
Net income rose to $2.74 billion, or $1.80 a share, from $2.22 billion, or $1.40 a share, the Charlotte, North Carolina- based bank said. It was forecast to earn $1.57 a share by 19 analysts polled by Thomson Financial.
Bank of America shares rose 18 percent in the second quarter as Chief Executive Officer Kenneth Lewis, 56, used the company's 4,200 branches, the most by any U.S. bank, to sell more loans at a time when interest rates were near a 45-year low. The bank earns about half of its profit offering credit, checking accounts and certificates of deposit to individuals.
``Given the millions of customers they touch every day, their consumer bank is a powerful engine for the whole company,'' said Michael Holton, who helps manage about $140 billion, including 6.5 million Bank of America shares, at T. Rowe Price Group Inc. in Baltimore.
Revenue grew 12 percent to $9.78 billion. Non-interest income, or profit from fees, rose 22 percent to $4.26 billion as home refinancing quadrupled to $559 million. Credit card income increased 23 percent to $762 million.
Bank of America's profit suffered less from declining rates than lenders such as SunTrust Banks Inc. and Wells Fargo & Co., because it earns more from securities underwriting and asset management, analysts said.
Interest Rates
Falling interest rates have reduced the spread between what banks paid for deposits and what they earn extending credit. That cut second-quarter profit at SunTrust 4 percent to $330.4 million. Bank of America had $160.2 billion in deposits in California and Florida as of June 30, 2002, more than any U.S. bank.
``The bad news is that the very low interest rates are pressuring all of the banks,'' said Phil Larkins, who helps manage $30 billion, including 15.9 million Bank of America shares, for Northern Trust Corp. in Atlanta.
Bank of America, with assets of $680 billion, is also benefiting from making fewer bad loans in the second quarter. It set aside $772 million for bad loans, down 13 percent from $888 million a year earlier. In 2002, it wrote off $3.7 billion to borrowers including WorldCom Inc. and Adelphia Communications Corp.
``Credit appears to be almost done as a concern,'' Bank of America Chief Financial Officer James Hance said in an interview last month.
Lending
Lending to companies with annual sales of up to $500 million is accelerating, which should allow the bank to profit should interest rates rise, Hance said. ``The cost of deposits won't go up with the rates,'' Hance said. ``So our spread will get wider sort of by the hour.''
To lessen Bank of America's dependence on consumers, Lewis has hired more than 25 investment bankers this year. The bank is using its relationships as the third-biggest arranger of loans to U.S. companies to try to win stock and bond underwriting and mergers advice assignments from Goldman Sachs Group Inc. and Morgan Stanley, Lewis said in a May conference call.
The bank ranks eighth in arranging U.S. stock sales, up from 11th in 2002, according to Bloomberg data. It ranks fifth in arranging U.S. corporate bond sales, down from fourth in 2002. It's 17th in advising on U.S. mergers and acquisitions, down from 12th in 2002.
Trading revenue declined 12 percent to $661 million due to losses in the credit derivatives it used to manage its corporate loan portfolio. Corporate and investment banking income fell 14 percent to $440 million from a year ago as revenue declined and expenses rose.
Investment Banking
Lewis is counting on markets recovering in the second half of the year to spur demand from corporate clients as some analysts expect consumer lending to slow.
Bank of America's profit from global corporate and investment banking, including syndicated lending and treasury management, could rise to a third from about 20 percent today, Lewis said.
``Clearly the driver of profit in the next 18 months is going to be very different,'' said David Katz, who oversees $850 million, including 131,800 Bank of America shares, for Matrix Asset Advisors Inc. As mortgages slow, he said, ``commercial lending and investment banking will pick up.''
Bank of America shares have risen 19 percent this year, the same as the average return of Philadelphia KBW banks stock index. The bank's shares trail those of Citigroup Inc. and J.P. Morgan Chase & Co., which fell last year amid regulatory probes into conflicts of interest among investment bankers and analysts.
``The consumer was strong, particularly in the mortgage area,'' Katz said.
Bank of America shares rose 5 cents to $82.93 at 6:10 a.m. in trading on Instinet.
Net income rose to $2.74 billion, or $1.80 a share, from $2.22 billion, or $1.40 a share, the Charlotte, North Carolina- based bank said. It was forecast to earn $1.57 a share by 19 analysts polled by Thomson Financial.
Bank of America shares rose 18 percent in the second quarter as Chief Executive Officer Kenneth Lewis, 56, used the company's 4,200 branches, the most by any U.S. bank, to sell more loans at a time when interest rates were near a 45-year low. The bank earns about half of its profit offering credit, checking accounts and certificates of deposit to individuals.
``Given the millions of customers they touch every day, their consumer bank is a powerful engine for the whole company,'' said Michael Holton, who helps manage about $140 billion, including 6.5 million Bank of America shares, at T. Rowe Price Group Inc. in Baltimore.
Revenue grew 12 percent to $9.78 billion. Non-interest income, or profit from fees, rose 22 percent to $4.26 billion as home refinancing quadrupled to $559 million. Credit card income increased 23 percent to $762 million.
Bank of America's profit suffered less from declining rates than lenders such as SunTrust Banks Inc. and Wells Fargo & Co., because it earns more from securities underwriting and asset management, analysts said.
Interest Rates
Falling interest rates have reduced the spread between what banks paid for deposits and what they earn extending credit. That cut second-quarter profit at SunTrust 4 percent to $330.4 million. Bank of America had $160.2 billion in deposits in California and Florida as of June 30, 2002, more than any U.S. bank.
``The bad news is that the very low interest rates are pressuring all of the banks,'' said Phil Larkins, who helps manage $30 billion, including 15.9 million Bank of America shares, for Northern Trust Corp. in Atlanta.
Bank of America, with assets of $680 billion, is also benefiting from making fewer bad loans in the second quarter. It set aside $772 million for bad loans, down 13 percent from $888 million a year earlier. In 2002, it wrote off $3.7 billion to borrowers including WorldCom Inc. and Adelphia Communications Corp.
``Credit appears to be almost done as a concern,'' Bank of America Chief Financial Officer James Hance said in an interview last month.
Lending
Lending to companies with annual sales of up to $500 million is accelerating, which should allow the bank to profit should interest rates rise, Hance said. ``The cost of deposits won't go up with the rates,'' Hance said. ``So our spread will get wider sort of by the hour.''
To lessen Bank of America's dependence on consumers, Lewis has hired more than 25 investment bankers this year. The bank is using its relationships as the third-biggest arranger of loans to U.S. companies to try to win stock and bond underwriting and mergers advice assignments from Goldman Sachs Group Inc. and Morgan Stanley, Lewis said in a May conference call.
The bank ranks eighth in arranging U.S. stock sales, up from 11th in 2002, according to Bloomberg data. It ranks fifth in arranging U.S. corporate bond sales, down from fourth in 2002. It's 17th in advising on U.S. mergers and acquisitions, down from 12th in 2002.
Trading revenue declined 12 percent to $661 million due to losses in the credit derivatives it used to manage its corporate loan portfolio. Corporate and investment banking income fell 14 percent to $440 million from a year ago as revenue declined and expenses rose.
Investment Banking
Lewis is counting on markets recovering in the second half of the year to spur demand from corporate clients as some analysts expect consumer lending to slow.
Bank of America's profit from global corporate and investment banking, including syndicated lending and treasury management, could rise to a third from about 20 percent today, Lewis said.
``Clearly the driver of profit in the next 18 months is going to be very different,'' said David Katz, who oversees $850 million, including 131,800 Bank of America shares, for Matrix Asset Advisors Inc. As mortgages slow, he said, ``commercial lending and investment banking will pick up.''
Bank of America shares have risen 19 percent this year, the same as the average return of Philadelphia KBW banks stock index. The bank's shares trail those of Citigroup Inc. and J.P. Morgan Chase & Co., which fell last year amid regulatory probes into conflicts of interest among investment bankers and analysts.
``The consumer was strong, particularly in the mortgage area,'' Katz said.
Bank of America shares rose 5 cents to $82.93 at 6:10 a.m. in trading on Instinet.
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