By Manya Saini and Lananh Nguyen
(Reuters) -Bank of America Corp reported a bigger-than-expected fourth-quarter profit on Friday, helped by a surge in net interest income as the U.S. Federal Reserve raised rates through most of last year.
The 'higher-for-longer' rate environment to battle decades-high inflation has underpinned profits at consumer banks, with analysts expecting those gains to peak in 2023 and help offset sluggish dealmaking as well as bigger loan loss provisions.
Bank of America (NYSE:BAC)'s net interest income (NII), which reflects how much money the bank makes from charging interest to customers, jumped 29% to $14.7 billion in the quarter.
Its profit applicable to common shareholders rose 2% to $6.9 billion, or 85 cents per share. Analysts, on average, had estimated a profit of 77 cents per share, according to Refinitiv IBES data.
Though four-decade-high inflation rates are testing U.S. consumers, spending trends have still largely been positive, bolstering Bank of America's profit in its key consumer banking unit.
"The consumer still remains in pretty good shape," Chief Financial Officer Alastair Borthwick told reporters. "There's a lot of pent-up demand," especially for travel, he said.
Net income at the bank's consumer banking unit jumped 15% to a record $3.6 billion in the quarter. Combined credit and debit card spending rose 5% to $11 billion.
The economic outlook darkened in 2022 as the Russia-Ukraine conflict, high inflation and growing fears of a recession prompted lenders to set aside bigger reserves for bad loans and also cast a pall over capital markets, curbing investor appetite for deals and straining investment banking units.
Even as the economic environment weakens, consumers "still have plenty of cushion left" in their bank accounts, Chief Executive Brian Moynihan told analysts on a conference call. "And while their spending remains healthy, we continue to see the pace of that year-over-year growth slow."
The bank's revenue, net of interest expenses, increased 11% to $24.5 billion.
Bank of America's investment banking fees more than halved to $1.1 billion in the quarter, taking some shine off its consumer business.
By contrast, its trading division racked up record revenue for the fourth quarter and brought in the highest full-year revenue since 2010. Revenue surged 27% to $3.7 billion in the fourth quarter, fueled by a 49% percent jump in fixed income, currencies and commodities.
The bank's provision for credit losses was $1.1 billion, compared to a reserve release of $500 million in the year-ago quarter.
Its Wall Street rivals JPMorgan Chase (NYSE:JPM) and Co and Wells Fargo (NYSE:WFC) also set aside larger provisions to prepare for a tougher economy.
Bank of America's income in its global wealth and investment management business declined 2%, while global banking fell 5%.
The bank continues to hire, particularly in wealth management, while also remaining disciplined on its expenses, Borthwick said. Its workforce swelled to 216,823 at the end of 2022 compared with 208,248 a year earlier.
"We don't have any plans for mass layoffs," he said.
That contrasts with Goldman Sachs Group Inc (NYSE:GS), which started laying off more than 3,000 employees this week.
Bank of America's shares rose 0.8% to $34.74 in early afternoon trading. The stock lost about 25.5% last year.