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Bank of America's second quarter profit beats expectations as rising short term interest rates offset trading slump

The lender's global market business saw revenues fall, reflecting a weakness in bond trading that has also hit other big banks, although overall second-quarter revenue still rose by 10% to US$23.07bn
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Second quarter profit also rose by 10% to US$5.27bn, up from US$4.78bn a year ago, while earnings per share were 46 US cents, beating market expectations for 43 US cents

Bank of America Corp (NYSE:BAC), the second-largest US lender by assets saw its second quarter profits rise, beating market expectations, led by gains in revenues recorded in three of its main businesses, but a drop in trading revenues proved a fly in the ointment.

The lender's global market business saw revenues fall, reflecting a weakness in bond trading that has also hit other big banks, although overall second-quarter revenue still rose by 10% to US$23.07bn, up from US$21.51bn a year ago, soundly outperforming analysts’ expectations for US$21.78bn.

Second quarter profit also rose by 10% to US$5.27bn, up from US$4.78bn a year ago, while earnings per share were 46 US cents, beating market expectations for 43 US cents a share.

Share price has regularly traded above its book level

Bank of America's shares have risen by 41% since last November's US Presidential election, boosted by Donald Trump's surprise victory, and as the lighter regulatory touch investors had hoped for from him has started to materialize. Short-term interest rates have also kept moving higher with the jobs picture strengthening, aiding the bank's results.

Following the Federal Reserve's approval of a large increase in its dividend and stock buybacks in late June, the bank's shares have regularly traded above book value, a level it never reached between the financial crisis and the start of 2017.

Trading revenue to come under pressure, warns bank

The quarter was not without challenges for the bank, which warned that its trading revenue would be under pressure. Excluding adjustments, revenue from sales and trading fell 9%, hurt by a 14% slide in its fixed income division.

Long-term interest-rates also reversed and started moving lower during part of the quarter, which contributed to the lender trimming its expectations for growth in net interest income. Similar factors weighed on earnings reports from J.P. Morgan Chase & Co. (NYSE:JPM) and other big lenders that reported their earnings last Friday.

Bank of America's provision for credit losses improved to US$726mln, up from US$976mln a year earlier.

In pre-market trading, Bank of America shares were down 0.7% to US$23.84.

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