A resilient U.S. economy, buoyant equities and a flurry of large deals have reignited hopes of a nascent recovery in dealmaking, although industry executives have expressed guarded optimism.
Investment banking fees jumped 35% to $1.6 billion in the reported quarter from a year earlier, partially offsetting a decline in interest payments due to slow demand from borrowers.
Last month, Chief Financial Officer Alastair Borthwick said he expected investment banking revenue to jump 10% to 15% in the first quarter.
Revenue from the segment also rose at rival JPMorgan Chase (JPM.N) and Citigroup (C.N) in the first quarter, fueled by gains in debt and equity capital markets.
Excluding one-off items, Bank of America earned 83 cents a share in the quarter ended March, sailing past analysts' average estimate of 76 cents a share, according to LSEG data.
Its sales and trading revenue rose 2% to $5.2 billion with equities contributing a 15% jump and fixed income currencies and commodities (FICC) posting a 4% decline.
"Bank of America's sales and trading businesses continued their strong 2023 momentum this quarter, reporting the best first quarter in over a decade," chief executive officer Brian Moynihan said.
Shares of Bank of America rose 0.9% before the bell.
"We expect the market to be OK with these numbers," wrote David George, analyst at Robert W. Baird, about BofA results.
"There could be some downside due to weak credit performance in CRE (commercial real estate) and card loans."
Bank of America set aside $1.3 billion in provisions in the first quarter, up from $931 million a year earlier. It also took more writedowns on office loans, which partly increased loan losses for its commercial division. Still, its CFO said the lender was carefully managing its CRE exposure.
"We've got a pretty small exposure overall to a limited number of names and that allows us to go, name by name, through any non-performing loans, to just make sure we're out in front of it," Borthwick said. The bank is reviewing ratings, property appraisals and sales, he said.
Net charge-offs or debts that are unlikely to be recovered, rose to $1.5 billion in the reported quarter from $807 million, mainly from credit card losses. The charge-offs are from delinquencies in the fourth quarter, but are beginning to stabilize, Borthwick said.
Shifting expectations for U.S. interest rate cuts and an uncertain economic outlook have made it more difficult to predict future profits, banking executives said last week.
If the Federal Reserve keeps rates higher for longer in the coming months, lenders that made bumper profits from rising interest rates in the last two years could build on their gains. But their earnings could diminish if a potential economic slowdown deters borrowers from taking out loans.
Revenue from Bank of America's consumer unit sank 5% to $10 billion in the quarter, primarily due to lower deposit balances.
BofA's net interest income (NII) -- the difference between what it earns on loans and pays for deposits -- slid 3% to $14 billion in the quarter due to higher deposit costs and modest loan growth.
Bank of America also took a $700 million charge in the reported quarter to replenish a government deposit insurance fund, drained by $16 billion to cover depositors of two banks that collapsed in 2023.
Profit from BofA's Merrill wealth management division rose about 10% to $1 billion as rising equity values generated higher fees with record revenue and client balances.
The division grew assets under management to $1.4 trillion from $1.3 trillion in the fourth quarter.
