The US bank has recorded a weaker performance of equity derivatives in Q2 2023, but posted growth from its FICC division.

Bank of America (BofA) has reported net income of US$7.4 billion for the second quarter of 2023 – an increase of 19% year-on-year (YoY), according to its latest quarterly report.

Revenues, net of interest expense, were up 11% to US$25.2 billion while non-interest expense was five percent higher to US$16.0 billion ‘driven by investments in the franchise across people and technology’ YoY. Common equity tier 1 (CET1) ratio increased 23 bps to 11.6% in Q2 23 from a quarter ago.

The bank’s global markets business delivered net income of US$1.1 billion in the quarter, up nine percent YoY, making it the third most profitable segment at BofA. Within global markets, sales and trading revenue of US$4.3 billion rose three percent in Q2 23 YoY. Excluding net debit valuation adjustments (DVA), the revenue was up by 10% to US$4.4 billion.

Structured products

The bank led by Brian Moynihan (pictured) achieved its highest ever quarterly structured product sales in the US market in the first quarter of the year.

In Q2 23, the US bank collected US$2.1 billion from 499 retail structured notes in its domestic market, taking a share of 7.6% of the market after J.P. Morgan, UBS, Citi, Goldman Sachs, Morgan Stanley and Barclays. The amount represented an increase from US$1.8 billion sold in the previous quarter.

BofA Securities remains the main distributor of the products on the back of 348 new issues while Morgan Stanley Wealth Management and InspereX (formerly Incapital) sold 35 products each followed by Raymond James (34), UBS Financial Services (22), Wells Fargo (seven) and BofA’s wealth management arm Merrill Lynch (one).

BofA Securities was also the distributor of four of the top 10 best-selling products in the US during the quarter - Fixed Income Auto-Callable Yield Notes - Worst of Option (09709VMX1), Accelerated Return Notes - S&P 500 (40443B858), Accelerated Return Notes - S&P 500 (89116C677) and Capped Notes with Absolute Return Buffer - S&P 500 (06418G743). Their respective sales volumes were US$93.4m, US$92.5m, US$91.7m and US$84.9m. 

Business lines

Equities revenue dropped two percent to US$1.6 billion primarily due to ‘weaker trading performance in derivatives, partially offset by an increase in client financing activities’.

Fixed income, currencies, and commodities (FICC) revenue increased seven percent to US$2.7 billion, ‘driven by strong trading performance in currencies, emerging markets interest rates, and secured financing, as well as improved trading in credit and mortgage products, partially offset by weakness in commodities’.

The consumer banking business posted revenues of US$10.5 billion, up by 15% in Q2 23 YoY, leading to net income of US$2.9 billion – the highest among the four segments.

Trailing behind is global banking with a net income of US$2.7 billion in Q2 23, which climbed 76% from the prior-year quarter.

Revenue of US$6.5 billion increased 29%, primarily led by ‘higher net interest income (NII), higher leasing revenue, and the absence of mark-to-market losses related to leveraged finance positions in Q2-22, partially offset by lower treasury service’.

The bank’s global wealth and investment management business saw its net income declining by 15% to US$978m. Revenue fell four percent to US$5.2 billion as ‘lower average equity and fixed income market levels and transactional volumes drove asset management and brokerage fees lower’.

As of 30 June, BofA posted structured note liabilities of US$39.9 billion in terms of average balance, an increase of 34.4% YoY, according to its 10-Q filing. From January to June, the US bank issued US$30.5 billion of long-term debt, US$7.5 billion of which are structured notes. 

On consolidated balance sheet, derivative assets dropped 4.5% to US$46.5 billion as of 30 June from six months ago while derivative liabilities were down 2.9% to US$43.4 billion. Both featured interest rate contacts, which recorded gross assets and liabilities of US$157.4 billion and US$155.9 billion, respectively.

Click the links to view the Bank of America Q2 2023 presentation and 10-Q filing.