Bank of America, Wells Fargo Gain as Release of Loss Reserves Boosts Profits

© Reuters.

By Dhirendra Tripathi – Bank of America stock (NYSE:) rose 2.6% and Wells Fargo (NYSE:) 1.2% in Thursday’s premarket trading as both banks were able to return money set aside for loan losses to the bottom line.

Bank of America, the second-largest U.S. bank by assets, released $1.1 billion of reserves in the quarter as the bank grew more confident in the ability of borrowers to repay their loans and less concerned about loan defaults. That boosted its profits by 58%, to $7.7 billion. Revenue rose 12%, to $22.8 billion.

Consumer banking, wealth management and investment banking operations all grew at BofA. In consumer banking, deposits rose as more people opened accounts. Credit and debit spending rose, too, helped also by growth in digital banking.

The global wealth management business was strong as more people engaged BofA to manage their funds, boosting fee income. Loan balances were higher at the end of the quarter. Merrill Lynch Wealth Management added around 4,200 net new households while private banking added around 275 net new relationships, BofA said.

Strong capital markets, heightened demand for advisory services in investment banking and those related to fund-raising and restructuring, boosted fee income in the division. BofA’s total investment banking fees increased 23% to near-record levels of $2.2 billion, the bank said.

At Wells Fargo, net income rose 59% to $5.12 billion, and it released $1.7 billion from loss reserves. Total revenue fell 2.5% due to lower loan balances, decreasing yields on assets and lower mortgage banking revenue.

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The quarter was a little challenging for the fourth largest U.S. lender, particularly in its mortgage business under the consumer and small business banking umbrella. There were fewer originations and the fee income from that fell, too.

Growth in advisory fees from corporate and investment banking made up for the hit in trading activity in fixed income, currency and equity. Fees rose 16% over last year in the bank’s wealth management business.

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