Banking

Bank of America sees record profits, but warns of impact of possible interest rate cut

Bank of America and Wells Fargo are on different paths. What does it mean for Charlotte?

Bank of America and Wells Fargo, are the two biggest banks in Charlotte. However, the two banks are completely different.
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Bank of America and Wells Fargo, are the two biggest banks in Charlotte. However, the two banks are completely different.

Bank of America had a record first half of the year for profit, but warned of oncoming headwinds from lower interest rates.

The bank, which has its headquarters in Charlotte, reported Wednesday that its profit was $7.3 billion in the second quarter, surpassing analysts’ expectations. It’s an increase of 8% from the same period last year.

Its revenue saw a smaller boost in the second quarter, jumping 2% to $23.1 billion.

But in a call with analysts, Chief Financial Officer Paul Donofrio said that declining interest rates would impact a key aspect of its profits.

The bank’s net interest income, or the difference between what a bank earns from the interest it charges on assets like loans and the interest it pays to depositors, rose 3% in the second quarter.

Previously, the bank said it expected net interest income to grow 3% for the year, compared with a 6% increase in 2018.

But now, Donofrio said that growth could slow to 1% if the Federal Reserve cuts rates twice this year.

The Fed has been raising interest rates for around three years after cutting them to close to zero to help the U.S. economy recover from the financial crisis. The Federal Reserve is now signaling it could lower rates.

Higher interest rates allow lenders to charge borrowers more.

The company’s shares closed at $29.26 Wednesday, an increase of around 0.6%.

Consumer strength

In a press release, CEO Brian Moynihan attributed the bank’s success to its “commitment to responsible growth.”

Moynihan, who took over in 2010, has also been working to cut costs at the bank, which became bloated after decades of acquisitions.

The bank’s noninterest expenses, which include all expenses besides those associated with keeping depositor’s funds, such as employee salaries, increased by $100 million in the second quarter. Part of that was attributed to the company’s higher minimum wage, which took effect in May. The bank announced in April it would raise the minimum wage to $17, and to $20 by 2021.

The firm said its headcount was just under 209,000, an increase from 205,292 in the first quarter of the year.

Around 15,000 employees work for Bank of America in the Charlotte region.

Bank of America’s record profits were boosted by its consumer banking segment, which saw an increase in loans and deposits.

Federal Reserve chairman Jerome Powell has cited ongoing risks from a global economic slowdown and the trade war in signaling that the Fed could cut rates.

But on the call Moynihan said despite the potential impact of lower interest rates, the economic environment for consumers remains strong. Unemployment is low, and wage growth is starting to pick up after years of sluggishness.

Yes, there’s a slowdown, but that slowdown was predicted by everybody,” he said. “But you’re actually seeing it pick up a little bit on the consumer side.”

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