Higher credit costs amidst profit beat
- 3Q23 net profit ahead of consensus
- Continue to see higher charge-offs and reserve build amidst higher rates and uncertain macroeconomic outlook
- Management sees economy “healthy but slowing”; paper losses on debt securities portfolio rises
3Q23 net profit ahead of consensus. Total revenue of US$25.2bn improved 3% y-o-y/ flat q-o-q), ahead of consensus. Net interest income (NII) of US$14.4bn (+4% y-o-y/+1% q-o-q) was higher q-o-q on higher rates and loan growth, non-interest income of US$10.8bn (+1% y-o-y/-2% q-o-q) on higher sales and trading revenue and asset management fees which offset lower other income. Net profit of US$7.8bn was +10% y-o-y/+5% q-o-q and earnings per share of 90 USCts was ahead of consensus estimates of 82 USCts. During 3Q23, total credit costs of US$1.2bn was higher y-o-y/q-o-q due to higher net charge-off of US$931m as well as a US$303m reserve build as BOA continues to be cautious in an uncertain macroeconomic outlook. CET1 ratio improved 29bps q-o-q to 11.9% with ROE at 11.2%. During the quarter, loan book were largely flat at US$1.0T while deposits declined 4% y-o-y/flat q-o-q to US$1.9T. Dividends per share has been raised by 9% to 24 USCts/share during 3Q23.
Management sees economy “healthy but slowing”; paper losses on debt securities portfolio rises. Management continues to observe US consumer spending continuing to slow, though still ahead of last year’s spending. Accordingly, it still remains to be seen if investment banking activities will recover due to macroeconomic uncertainty. Management also shared that held to maturity losses on its cash and securities portfolio increased to US$131bn (2Q23: US$116bn), though the bank is not expected to realise these losses.