Bank of America's slow loan growth eclipses earnings gains

(Reuters) – Bank of America Corp's (BAC.N) loan growth was delayed relative to competitors and advisory fees on transactions and collateral decreased in the third quarter, dropping its share price by 1.7 even as its earnings exceeded its expectations.

Earnings from the second-largest US bank increased 35% on cost control, but investors focused on the underlying business.

"It was certainly a surprise when some of the other banks experienced loan growth that exceeded expectations," said R.J. Grant, transaction manager at Keefe, Bruyette & Woods.

Bank of America's total loan portfolio grew by 0.3% to $ 930 billion in the third quarter compared to the same period last year. Declines in mortgages and client loans in its markets offset gains in personal banking, wealth management and commercial loans.

JPMorgan Chase & Co (JPM.N) recorded a 6% increase in loans and Citigroup Inc (C.N) reported an increase of 4%.

Bank of America shares were down 48 cents to $ 27.98 shortly after noon.

Fees generated by merger advisory fees fell 26% in the quarter, as did bond-related fees. Its sales and trading revenues dropped by 5%.

During a teleconference with reporters, CFO Paul Donofrio said that Bank of America was employing to repair his mergers and acquisitions business after losing market share. At the end of the year, Matthew Koder succeeds Christian Meissner at the head of the corporate and investment bank, which has announced its intention to leave last month.

"I know we can do better," Donofrio said.

Nevertheless, the third-quarter profit showed the benefits of cost control put in place by Executive Director Brian Moynihan. By cutting staff, closing unprofitable branches and rehabilitating old technology, it has eliminated billions of dollars in annual expenditures.

Lenders in general benefit from a strong US economy. Rising interest rates, lower taxes, strong deposits and strong demand for loans boosted the sector this year. Some major banks reported record profits quarter after quarter.

Bank of America's third-quarter profit jumped to $ 6.7 billion from $ 5 billion a year earlier. Excluding one-off items, the bank posted earnings per share of 67 cents versus an average of 62 cents per analyst, according to Refinitiv's I / B / E / S data.

"Overall trends continued to look solid," Citigroup analyst Keith Horowitz said in a report. "The underlying fundamentals are not necessarily as strong as the total number."

Revenues increased 4% while non – interest expenses decreased by 2%. Through its efficiency efforts, Bank of America's costs have increased or fallen more than revenues over the last 15 quarters.

The bank plans to maintain its annual costs at around $ 53.5 billion by 2020, Donofrio said in a separate appeal with analysts. This compares with costs of more than $ 80 billion representing 85% of revenues in 2011, the year Moynihan first unveiled an efficiency program called "Project New BAC".

In the first nine months of this year, Bank of America's cost / revenue ratio was 59%. This compares to 57% at JPMorgan Chase & Co (JPM.N), 58% at Citigroup Inc (C.N) and 65% at Wells Fargo & Co (WFC.N).

When asked about whether Bank of America could reach its cost ratio by the mid-1950s in percentage terms, Mr. Moynihan said, "We should continue to reduce it."