Bank of America says rate cuts could reinvigorate mortgages and that its digital and cards strategies will help it grab more market share to offset shrinking margins.
The Minneapolis bank reported growth across several lending and noninterest income categories in the second quarter, which offset net interest margin pressures and declining deposit service fees.
Gains in the retail division helped drive overall profit to a record for a fifth consecutive quarter as mortgage activity surged and provisions for bad loans posted a surprise drop from the first quarter.
Total and core deposits fell in the second quarter from three months earlier at the Los Angeles bank as consumers sought higher yields, but CEO Matt Wagner said assuring proper funding for loan growth is a priority.
Granted, the bank's earnings per share topped estimates in the second quarter, but its forecast on net interest income suggests it will be harder for JPMorgan Chase to offset declining revenue from trading stocks and bonds.
The company could rein in deposit costs, cut operational expenses and buy back more shares in anticipation of a Federal Reserve rate reduction. Other banks — especially big ones — could do the same.
Credit quality and loan growth are also topics of interest, but industry observers say the second quarter could separate the haves from have-nots when it comes to low-cost funding.
More than 66% of the banks reported a jump in net income during the first quarter but new risks are emerging in interest rates and underwriting, the Federal Deposit Insurance Corp. said Wednesday.
It's tempting to reach for higher returns on securities in anticipation of tightening margins. However, that strategy has pitfalls, including underestimating risks or being caught flat-footed by future rate moves.
