Top firm's cost-cutting machine hummed along for another quarter

Coffee Machine

Trimmed costs by 5%.

The Bank of America cost-cutting machine hummed along for another quarter.

The second-biggest U.S. lender said that second-quarter profit surged 33 percent to $6.8 billion, exceeding the $5.92 billion estimate of analysts surveyed by FactSet. Executives said it was the 14th straight quarter the firm posted positive operating leverage, or increased profit by turning levers including costs.

The Charlotte, North Carolina-based bank said it managed to boost revenue while cutting expenses more than analysts had expected. The lender trimmed costs by 5 percent to $13.3 billion, beating the $13.5 billion forecast of analysts surveyed by Thomson Reuters. Meanwhile, revenue rose 3 percent to $22.6 billion, compared to the $22.3 billion estimate, excluding a year ago-gain tied to a business sale. The company's earnings per share surged 43 percent to 63 cents per share, crushing the 57 cent per share estimate.

Still, of all the figures on the bank's income statement for the quarter, the most stark change was a 43 percent drop in the bank's income taxes to $1.7 billion from $3 billion. That looked to be the single biggest factor in the bank's profit increase in the quarter. The administration's tax cut, which took effect this year, also allowed the firm to announce a new $500 million technology investment, Bank of America said.

The company's shares rose 0.7 percent in premarket trading in New York.

Chief Executive Officer Brian Moynihan has cleaned up much of the mess he inherited when a predecessor purchased subprime lender Countrywide Financial a decade ago. He has since focused on methodically reducing costs while looking for modest profit opportunities, often repeating his mantra of “responsible growth.” The firm benefited from a U.S. economy in growth mode, lower taxes after the administration's overhaul, higher interest rates and an environment in which consumers are still repaying loans.

The firm set aside $800 million for credit losses in the quarter, less than the $973.5 million expected by analysts. Non-performing loans fell half a billion dollars from the first quarter of 2018 on improvements in consumer and commercial debt. While the bank grew loans and leases to $935.8 billion, that was below the $942 billion estimate.

"Responsible growth continued to deliver as a driver for every area of the company," Moynihan said in a statement. "We grew consumer and commercial loans; we grew deposits; we grew assets within our Merrill Edge business; we generated more net new households in Merrill Lynch; and we supported more institutional client activity."

Still, the firm’s shares have trailed other banks and the broader stock indices this year, declining 3.3 percent before Monday. Analysts will be keen to see if the Charlotte, North Carolina -based firm is keeping pace with the industry’s loan growth and if its profit margins on loans is getting squeezed – two fears that have kept bank stocks down this year.

Have something to tell us about this article?

JefferiesAnd the Best Place to Work in the global financial markets 2018 is...