Bank of America Corp (NYSE:BAC)’s Q2 revenue fell short of expectations according to its earnings release, causing its shares to dip 2.1% in Wednesday’s premarket. The banking giant reported revenue of $21.6 billion, just under the $21.8 billion prediction.
Falling Interest Rate Effect
“Excluding that one-time gain, EPS of 80 cents a share edged out the 77 cents estimate of analysts surveyed by Refinitiv,” as reported by CNBC. Further, the company detailed a revenue fall of 4% from a year previous, caused by a 6% decline in net interest income due to lower interest rates.
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“Lower trading revenue and the absence of a $704 million gain a year earlier also hit revenue,” the bank said.
The Q2 results of the banking giant, analysts say, confirm the effect of falling interest rates on the industry, as banks “gather deposits and extend loans.” Also, the drop in interest rates “squeeze the margin between what they pay depositors and charge borrowers.”
Also, based on analysts surveyed by FactSet and their 1.67% estimate, net interest margin dropped 26 basis points from a year previous, hitting 1.61% in the quarter. Still, the bank’s net Q2 income hit $9.2 billion, exceeding estimates of $6.6 billion.
CEO Brian Moynihan said in the earnings release: “We delivered solid earnings and returned more capital to shareholders during the quarter as we moved to a more open economy.”
He further added that “consumer spending has significantly surpassed pre-pandemic levels, deposit growth is strong, and loan levels have begun to grow.”
Fixed Income Trading Operations Fall Short
In the bank’s earnings release, CFO Paul Donofrio pointed to the “continued challenge of low interest rates.”
As the economy recovers, the 10-year Treasury yield broke in March above 1.75%, reaching its maximum since COVID-19 kicked in. But as of Tuesday, the benchmark rate has backtracked to roughly 1.40%.
According to the bank’s release, its fixed income trading operations produced $1.97 billion in revenue, significantly short of the $2.71 billion forecasted by analysts. The deficit “was partially made up by the equities division, which produced $1.63 billion in revenue, topping the $1.35 billion estimate.”
Since the banking industry has overall reported lethargic loan growth in 2021, CEO Brian Moynihan is expected to render his outlook for loans in the second half of the year. Bank of America said Wednesday that its book of loans had grown in Q2 for the first time since the beginning of 2020.