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Jan 16, 2019

Bank of America's retail bankers pick up slack for beleaguered bond traders

U.S. banks are 'missing in a big way'

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Bank of America Corp.’s (BAC.N) consumer bankers saved the day for their bond-trading colleagues.

The company’s retail-banking business saw a 5 per cent jump in loans in the fourth quarter and drove a record profit for the company, helping counter a slide in bond trading that’s been hurting all of Wall Street.

“We see a healthy consumer and business climate driving a solid economy,” Chief Executive Officer Brian Moynihan said in a statement Wednesday. “Solid asset quality and loan and deposit growth drove this quarter’s results.”

Net interest margin, the difference between what a bank charges borrowers and pays depositors, climbed to 2.48 per cent in the quarter, a bigger jump than analysts expected. Higher rates and improving loan growth have spurred Bank of America’s consumer business to a larger profit in each of the last three quarters, allowing the bank to weather a loss in share in its investment-banking unit as it pulled back on risk.

The company’s sales and trading revenue for fixed income, currencies and commodities dropped 15 per cent to US$1.4 billion in the fourth quarter, falling short of a median analyst estimate of US$1.6 billion. That follows declines in bond-trading revenue at JPMorgan Chase & Co., which plunged to the lowest since the 2008 financial crisis, and Citigroup Inc., which fell to a seven-year low. In equities, trading revenue rose 11 per cent at Bank of America.

Bank stocks sank 18 per cent last quarter as investors grew concerned about the potential for a U.S. recession and slowdown in global economic growth. That pessimism, alongside worries about trade tensions between the U.S. and China, triggered big price swings across equities, bonds and foreign exchange. While turbulence can sometimes spur banks’ market-making activities, so-called “bad volatility,” typified by extreme and short-lived price moves, kept wary clients on the sidelines.

Despite those headwinds, Bank of America’s consumer business continued to shine. Average deposits in that division grew 3 per cent, while the unit’s net interest income rose 12 per cent.

Fees from investment banking slipped 5 per cent at US$1.3 billion, beating a median estimate of US$1.2 billion. Dealmakers are being sent out to rebuild market share after Charlotte, North Carolina-based Bank of America got “a little too careful,” Moynihan said last month.

Bank of America’s shares jumped 3.6 per cent at 7:09 a.m. in early New York trading. They have declined 15 per cent in the past year.