Bank of America reported some of its best financial results in a decade on Monday, while the Charlotte company further chipped away at its expenses, a trend executives said is not going away.
In the third quarter, the second-largest U.S. bank by assets posted its largest pretax profits in 10 years, in part from a surge in trading business that also boosted revenues at some rival banks.
But Bank of America’s latest results also benefited from its ongoing focus on cost-cutting, with the company shedding more than 1,500 positions since June – bringing it to its lowest employment level in eight years.
CEO Brian Moynihan, speaking on an earnings call with analysts, said Bank of America has continued to add sales positions while eliminating other jobs, such as back-office functions, through automation. More job cuts could be ahead, as executives Monday stood by plans unveiled earlier this year to reduce annual noninterest expenses to about $53 billion by the end of 2018. The bank’s chief financial officer said Monday the company doesn’t have a specific target for employee levels.
“As we look forward, we are driving responsible growth and maintaining discipline on costs,” said Moynihan, who turns 57 this week.
Even as they addressed Bank of America’s earnings, executives also found themselves fielding questions from analysts and reporters on sales practices at the bank, following a major scandal at Wells Fargo over sales tactics. Bank of America chief financial officer Paul Donofrio said his bank hasn’t found similar problems and that the company is focused on developing relationships with customers to give them products they want, need and use.
“It’s not about the number of products we open,” Donofrio said.
While job-cutting at Bank of America has slowed since the financial crisis, years of trimming since Moynihan became CEO in 2010 means the bank has only about 2,400 more employees than in June 2008. That was shortly before it added tens of thousands of workers by buying Countrywide Financial that same year and Merrill Lynch in 2009.
On Monday, Bank of America reported 209,009 employees, a drop of more than 81,000 since Moynihan took over. Bank of America noted Monday its Charlotte-area employment has remained at more than 15,000 even as positions have been eliminated here.
Such moves have come as Moynihan further streamlines a company that ballooned into a coast-to-coast megabank after decades of acquisitions. Executives said Monday streamlining will continue under a 2-year-old program called Simplify and Improve.
Moynihan is also pushing to reduce costs in an era of stubbornly low interest rates, which the Federal Reserve slashed in 2008 to help the U.S. recover from the financial crisis. Those low rates are good for borrowers but bad for banks’ profit margins. Bank of America executives have said they are not waiting for rates to rise, but instead will focus on what’s in their control, such as growing loans and deposits and trimming expenses.
Bank of America’s revenue in the quarter increased 3 percent, lifted largely by higher trading revenue. Fees from investment banking marked the best third quarter since the Merrill Lynch deal.
Earnings per share excluding accounting adjustments were 42 cents, beating the 33-cent average estimate of analysts surveyed by Bloomberg. The bank said its pretax net income of $7.3 billion was the highest in a decade.
Shannon Stemm, a bank analyst with Edward Jones, called it a “solid” quarter for Bank of America. The bank now needs to convince investors its costly crisis-era legal troubles are well behind it and that the company can continue receiving Federal Reserve approval to return more capital to shareholders, Stemm said. Bank of America’s stock price will improve more if it can instill such confidence in the market, she said.
Bank of America’s stock is down about 5 percent this year, higher than the 3 percent drop in the KBW Bank Index, which tracks share performance of 24 large U.S. lenders. Bank of America shares rose less than 1 percent Monday to $16.05.
It became the latest large U.S. bank to report third-quarter results, after JPMorgan Chase & Co, Citigroup and Wells Fargo released their figures last week.
New York-based JPMorgan, the largest U.S. bank, said profits fell 7.6 percent from a year ago to $6.29 billion. New York-based Citigroup, the fourth-biggest U.S. bank, said it earned $3.8 billion in the quarter, down 11 percent from a year ago.
San Francisco-based Wells Fargo, the third-largest U.S. bank, said third-quarter profits dropped 3 percent to $5.6 billion compared with a year ago.
Though Bank of America has made progress on lowering its expenses, in large part by slashing costs in a troubled-mortgage unit, costs remain a major focus for investors. During an earnings call Monday, expenses were the subject of the first question Bank of America executives took from analysts.
Bank of America is striving to lower its efficiency ratio, a measure of how much it costs the bank to generate a dollar of revenue, to 60 percent. The bank reported a ratio of 61.66 percent, an improvement from 65.7 percent a year ago.
The bank cut its expenses in the third quarter by $458 million, helped by a 2 percent drop in personnel costs driven by lower staffing. Bank of America, which has hacked away at its branches in recent years, reported shedding another 52 in the quarter.
“We’re absolutely working on our expenses,” Donofrio said.