Bank of America Rides the Rebound in Financial Sector, With Strong Revenues and Earnings

A Bank of America customer uses an ATM at a Bank of America branch office in San Francisco on July 14, 2021. Justin Sullivan/Getty Images

Business Analysis

Bank of America (BoA) joined the ranks of large U.S. banks benefiting from a rebound in the banking industry, reporting solid earnings and revenues across every business segment.

On the morning of Jan. 16, the North Carolina-based bank reported earnings of $6.7 billion for the fourth quarter, more than doubling from a year earlier and ahead of analysts’ estimates of $6 billion. Revenue reached $25.3 billion, up 15 percent from a year earlier.

That’s thanks to a rebound in the financial sector, which drove revenues higher across every business segment. Higher asset management and investment banking fees led the charge, followed by sales and trading revenue, higher loan balances, and fixed-rate asset repricing, partially offset by lower interest rates.

Meanwhile, provision for credit losses improved slightly, with net reserve release almost doubling from the third quarter of 2024, according to the financial release.

“We finished 2024 with a strong fourth quarter. Every source of revenue increased, and we saw better than industry growth in deposits and loans,” said Bank of America Chair and CEO Brian Moynihan.

“We also ended with strong capital and liquidity, enabling us to return $21 billion of capital to shareholders in 2024. We believe this broad momentum sets up 2025 very well for Bank of America.”

Alastair Borthwick, the bank’s chief financial officer, underlined the strong fee incomes generated throughout 2024 and expressed confidence that the bank is on track to continue growing net interest income in 2025.

“The fourth quarter also marked a return to operating leverage,” he said. “Asset quality is healthy, and client spending continued to grow at a moderate pace, reflecting a solid economic environment. Looking toward 2025, we remain focused on delivering for our shareholders while supporting our clients’ growth and driving market share.”

However, Wall Street was skeptical about BoA’s fourth-quarter financial performance, as evidenced by its stock’s trading pattern during the regular trading session on Thursday. After an initial pop in the opening, it lost ground, trading sharply lower in the afternoon before recovering slightly in the last hour to close lower.

Several factors can explain Wall Street’s skepticism. One is that the results are compared with a much lower benchmark from a year earlier, so they look much better in relative than in absolute terms.

In addition, Wall Street may have already priced in this impressive performance, with BoA’s shares gaining 45 percent over the past 12 months compared with the S&P 500 Index’s gain of 24 percent.

Another factor is Wall Street’s concern about asset management fees, a critical driver of BoA’s performance. These fees usually depend on financial market performance, making them unpredictable. This adds uncertainty to investing in the bank’s shares, turning away conservative investors.

One of these investors is Warren Buffett. According to regulatory filings, the value investment company with an affinity for the banking sector sold $338 million worth of BoA shares last week, following another $228.7 million sale in early September 2024.

A third factor contributing to Wall Street’s skepticism is concerns over persistently high interest rates, which are beginning to affect commercial real estate loans and credit card loans.

Data from the Federal Reserve Bank of Saint Louis shows that commercial loan delinquencies have doubled over the past two years, while credit card delinquency rates have tripled over the same period. These delinquencies could negatively impact the company’s loan portfolio.

Digging below the headlines, bank experts voiced caution.

“It makes it hard for the bank to expand its core activities,” bank veteran Panos Angelopoulos told The Epoch Times, referring to BoA’s low marginal capital adequacy ratio.

Georgios Koimisis, economics and finance associate professor at Manhattan University, is concerned about BoA’s fixed-income portfolio.

“Past decisions to invest heavily in low-yield bonds during the pandemic are still causing problems, with large unrealized losses and slower stock growth than its peers,” he told The Epoch Times via email.

David Materazzi, CEO of Galileo FX, an automated trading platform, attributes BoA’s performance to a favorable interest rate environment that may not last.

“I think that Bank of America is doing what it should in a high-rate environment: locking in strong profits and growing revenue,” he told The Epoch Times via email.

“But I also think it is important not to mistake favorable conditions for permanent strength. Their reliance on net interest income is a risk when rates inevitably fall. I trust the BoA management and like the business overall. But I remain focused on long-term growth over short-term wins.”