Monday 17 October 2016 3:09 pm

Great expectations? Bank of America comfortably beats estimates for third quarter

Shares in Bank of America nudged up in early trading today, after the lender reported earnings which sailed past expectations.

The figures

The US bank reported net income of $5bn (£4.1bn), up seven per cent from the prior year's $4.6bn. Meanwhile, earnings per share grew to $0.41, an increase of eight per cent from $0.38 and beating out estimates from analysts, compiled by Yahoo Finance, of $0.33.

Bank of America announced revenue, net of interest expense, of $21.6bn, an increase of three per cent from $21bn last year.

Meanwhile, non-interest expenses were cut to $13.5bn, down three per cent compared with $13.9bn for the same quarter the year before.

Shares are currently trading up 0.5 per cent at $16.08.

Why it matters

The business environment has not exactly been accommodating for banks as of late, particularly as lower for longer interest rates take their toll on lenders' ability to pull in a profit and increasing red tape pushes up costs.

Meanwhile, political instability, caused by the UK's referendum on EU membership over the summer and the upcoming presidential elections in the US, has caused many clients to think twice before making big decisions.

However, the US banks so far have revealed much better earnings than many were expecting – JP Morgan, Citigroup and Wells Fargo all reported stronger than hoped for figures on Friday – providing investors with some hope about the financial health of the industry.

What Bank of America said

Brian Moynihan, chief executive, said:

We delivered strong results this quarter by staying true to our strategy of responsible growth and focusing on the quality of the relationships with our customers and clients. We grew revenue, reduced expenses and continued to manage risk, resulting in a 17 per cent increase in pretax earnings.

Paul Donofrio, financial chief, added:

Strong client activity and good expense discipline combined to drive positive operating leverage as we continue to optimise and strengthen our balance sheet. With near-record levels of capital and liquidity, as well as robust underwriting standards, Bank of America is stronger, safer and better prepared to deliver for customers and clients than probably at any time in our history.