Bank of America (BAC) said Tuesday that first-quarter profits fell 18% from a year ago due to a weakening of a key revenue source, offering the latest example of how even the most Large banks are increasingly facing high interest rates.
Bank of America’s net interest income fell 3% from the prior-year period “as higher deposit costs more than offset higher asset yields and modest loan growth,” the bank said in a statement.
This measure reflects the difference between what a bank earns on its loans and other assets and what it pays on its deposits. It is a vital contributor to the profits of all banks.
Three other giant banks — JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (VS) – also revealed difficulties with this revenue source, as the Federal Reserve’s higher and longer interest rates continue to pressure lenders to pay more to keep their depositors.
Bank of America stock was flat premarket.
One sign of the impact of rising deposit rates on Bank of America is the drop in its non-interest-bearing deposits by 16%, to $520.6 billion. Another factor is the higher rate it paid on interest-bearing U.S. deposits, which reached 2.53% in the first quarter, up from 1.28% a year earlier.
Deposit pricing pressure is also increasing at Wells Fargo and Citigroup, which revealed they are paying more for this financing than a year ago.
That pressure is likely to intensify now that investors no longer expect a Fed rate cut in June, due to higher-than-expected inflation data last week and a surprisingly resilient economy.
One of Bank of America’s bright spots has been its Wall Street operations.
Revenues from investment banking, trading and wealth management all rose from last year and the previous quarter, beating analysts’ expectations.
Trading and wealth management grew more than 2% and 5%, while investment banking revenue of $1.57 billion was up 35% from last year.
“Our wealth management team generated record revenue, with record client balances, and investment banking rebounded,” said CEO Brian Moynihan.
“Bank of America’s sales and trading business continued its strong 2023 momentum this quarter, reporting the best first quarter in more than a decade.”
Click here for in-depth analysis of the latest stock market news and events that move stock prices..
Read the latest financial and business news from Yahoo Finance
