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Benefits of the Bank of America raised by the Tax Law, Interest rates on the rise

Bank of America
Corp.


BAC -2.77%

said Monday that a boost to the US tax law. UU And the continued rise in interest rates helped boost first-quarter earnings, extending the chain of better-than-expected results from the nation's largest banks.

Quarterly earnings at the Charlotte, NC-based bank were $ 6.92 billion, compared to $ 5.34 billion a year ago. Earnings per share were 62 cents; analysts expected 59 cents per share.

First quarter revenue for the bank led by the president and the executive director

Brian Moynihan

It reached $ 23.13 billion, above $ 22.25 billion a year ago. Analysts expected $ 23.06 billion.

Bank of America shares, up almost 1% in 2018, rose around 0.9% to $ 30.08 in pre-market operations. After a major escalation after the 2016 presidential election, bank shares have stagnated so far in 2018.

This quarter is the first time that investors have the opportunity to see exactly how much the recent tax law is helping final result of the bank. . The banking industry was one of the biggest beneficiaries of the lowest corporate tax rate. While it generated large single charges last quarter, the lower rate is beginning to raise bank profits this quarter. Much of that is already in the analysts' estimates of the bank's future earnings, however.

Bank of America said that its effective tax rate was reduced by 9 percentage points due to the law. In the quarter, the bank paid $ 1,480 million in income taxes, compared to $ 1,980 million in the same quarter of the previous year.

Notwithstanding the fiscal benefits, the underlying yield of the bank was also solid. Earnings before taxes – a good way to see the bank's performance without the tax increase – increased approximately 15% to $ 8.39 billion from $ 7.320 billion a year earlier.

Bank of America's capital yield reached 10.85% this quarter, above the theoretical 10% cost of capital. That is a milestone for the bank, which has had difficulty raising this key metric in recent years. In the quarter of the previous year, the metric was 8.09%

"Strong customer activity, together with a growing global economy and solid consumer activity in the US, generated record quarterly earnings" said Moynihan in a press release.

The increase in interest rates also helped earnings. In general, higher rates are good for banks because they make a profit by the difference between what they pay for deposits and the rate they charge for loans. In the quarter, the Federal Reserve raised its reference rate for the sixth time. Bank of America said its net interest income increased approximately 5% compared to the previous year.

Banks have been able to pocket most of the benefits of rate increases because customers are not demanding more interest. The rate that Bank of America paid for deposits that accrue interest from the US. UU It was 0.30%, only a slight increase from 0.27% in the previous quarter. Even so, deposits increased more than 4% compared to the previous year.

Another bright spot for the bank's earnings outlook: after several quarters of disappointing business income, the wild price fluctuations for the markets in the first quarter meant that the Wall Street trading tables had a pretty good quarter. Even so, the results were not much better than a year ago, which was also occupied after the 2016 US presidential election.

Bank of America reported that transaction revenues, excluding an accounting adjustment, went up by less than 1% to $ 4.05 billion from $ 4.03 billion in the first quarter of last year. Equity income increased 38%, while income from fixed income, foreign exchange and commodities fell 13%.

JPMorgan Chase

& Co. and

Citigroup
Inc.,

the other two big Wall Street banks that reported the results on Friday also showed an increase in intermediation revenues. Bank of America's earnings were more in line with Citigroup's 1% increase than the 13% move of JPMorgan.

Mr. Moynihan, now in his ninth year as CEO, has made cost cutting a key principle of his business strategy. In the first quarter, expenses fell about 1% to $ 13.90 billion from $ 14.09 billion a year ago. That helped boost the bank's efficiency ratio, which measures spending as a percentage of revenues, below 60%, compared to 62.8% a year ago.

Loan growth, which has slowed down in the banking industry since the 2016 presidential election, increased 3% from the previous year at Bank of America.

Write to us Rachel Louise Ensign at rachel.ensign@wsj. com

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