Tumbling Credit Losses Spark Surging 3Q Profits at Bank of America

Buoyed by stronger credit conditions, Bank of America (NYSE:BAC) revealed soaring third-quarter profits on Wednesday that exceeded forecasts on Wall Street despite slumping fixed-income revenue.

The No. 2 U.S. bank said it earned $2.5 billion, or 20 cents a share, last quarter, compared with a profit of $340 million, or less than a penny a share, a year earlier. Analysts had called for EPS of 18 cents.

Revenue increased 5.4% to $21.53 billion, narrowly trailing the Street’s view of $22.03 billion.

“This quarter, we saw good loan growth, improved credit quality and record deposit balances,” CEO Brian Moynihan said in a statement. "The economy and business climate will improve even more quickly as conditions normalize, and we are well positioned to benefit from that."

BofA’s profit growth was driven in part by tumbling credit losses, which fell by $915 million from the second quarter and by $1.5 billion year-over-year to $296 million.

The bank’s allowance for credit losses dropped by $1.4 billion, compared with a $900 million reduction in the second quarter.

On the other hand, BofA reported a net loss of $778 million for its global markets division, compared with a loss of $276 million the year before.

The bank cited lower revenue across its fixed-income businesses. Fixed income, currency and commodities sales suffered a $501 million decrease in revenue amid lower market volumes due to concerns about monetary policy and political uncertainty.

Equities sales and trading revenue jumped 36% to $970 million amid stronger volumes and increased market share.

On the mortgage front, BofA’s consumer real estate services division reported revenue of $1.58 billion, down substantially from $3.08 billion the year before. The unit posted a net loss of $1 billion in the third quarter, compared with a loss of $857 million the year before.

BofA continued to detail efforts to bolster its balance sheet, reporting a Tier 1 common capital ratio of 11.08%, up from 10.83% in the second quarter.

Shares of Charlotte-based BofA ticked up 0.07% to $14.25 in premarket trading Wednesday morning, putting them on track to maintain their 22.7% year-to-date gain.

Earlier this week, Citigroup (NYSE:C) reported disappointing third-quarter results that were marred by slumping fixed-income revenue.