Bank of America (BAC) Q1 2024: Sales & Trading Revenue Hits $5.2B as Deposit Growth Defies QT

April 16, 2024 | By EarningsIQ Research

Bank of America’s first quarter results delivered upside surprises across fee-based businesses and deposit growth, outpacing internal expectations despite macro uncertainty and QT headwinds. Sales and trading revenue posted a decade-high, while deposit inflows and stable loan balances signal franchise resilience and operational discipline. Management’s conviction in a second-half NII upturn and expense control underpins a cautiously optimistic outlook, even as credit normalization and regulatory uncertainty remain in focus.

Summary

• Fee Engines Outperform: Investment banking and sales & trading delivered robust growth, offsetting NII pressures.
• Deposit Base Stabilizes: Consumer and commercial deposits rose, defying QT-driven outflow expectations.
• Expense Control Holds: Operating leverage and digital investment kept expense growth below inflation.

Business Overview

Bank of America is a diversified financial services company generating revenue through net interest income (NII), fee-based services, and trading. Its major segments include Consumer Banking (retail deposits, cards, lending), Global Wealth & Investment Management (Merrill and Private Bank advisory and brokerage), Global Banking (commercial lending, treasury, investment banking), and Global Markets (sales & trading, market-making). The company’s business model blends deposit gathering, lending, and capital markets activities, with a focus on digital delivery and cross-segment integration to deepen client relationships and drive organic growth.

Performance Analysis

Bank of America’s Q1 2024 results demonstrated broad-based strength across fee-generating businesses and balance sheet management. Investment banking fees rebounded to $1.6 billion, up 35% YoY, driven by share gains and middle-market expansion. Sales and trading revenue (excluding DVA) reached $5.2 billion, the highest first-quarter result in over a decade, as capital allocation and talent investment paid off in both FICC and equities, despite a softer macro trading environment.

Deposit growth was a standout, with total deposits rising $23 billion QoQ and now $100 billion above the 2023 trough, signaling customer retention and franchise stickiness even as industry peers faced QT-related outflows. Average loans were flat QoQ, with credit card growth offset by securities-based lending declines and muted commercial utilization. Net interest income (NII) outperformed guidance, rising $100 million sequentially, as higher-yielding assets and disciplined pricing offset deposit cost headwinds. Expense growth remained restrained, up less than 2% YoY (ex-FDIC special assessment), well below inflation, as digital adoption and operational excellence programs delivered efficiency gains. Credit normalization continued, with net charge-offs rising to 58 bps, led by credit card seasoning and commercial real estate exposures, but loss rates remained within risk appetite.

• Fee-Based Revenue Expansion: Wealth management and brokerage revenue rose 11% YoY, with $25 billion in net flows and strong digital engagement.
• Balance Sheet Resilience: CET1 capital reached $197 billion, $31 billion above regulatory minimums, supporting $4.4 billion in shareholder returns.
• Deposit Outperformance: Deposit growth exceeded loan growth for the third straight quarter, with consumer checking balances up 38% since 2019.

Segment results reflected a mix of strengths and normalization dynamics: Consumer Banking earnings fell 15% YoY on lower deposit balances and higher provision, while Wealth Management posted record revenue and 10% net income growth. Global Banking earnings declined 22% YoY, but investment banking and treasury services fees provided offsets to NII pressure. Global Markets delivered 7% earnings growth on strong trading and capital deployment.

Executive Commentary

Strategic Positioning

1. Digital Scale and Efficiency

Bank of America’s ongoing investment in digital platforms and automation is materially reducing marginal cost per transaction. The virtual assistant Erica surpassed 2 billion interactions, with the last billion achieved in just 18 months, and Zelle transaction volume now exceeds checks plus cash withdrawals combined. These digital levers are lowering expense growth, supporting customer retention, and enabling scale without proportional headcount growth.

2. Franchise Deposit Advantage

Deposit stability and growth, especially in core checking, provide a durable funding base and margin advantage. With 92% of consumer checking accounts serving as primary household accounts and balances up 38% since 2019, BAC’s deposit franchise is proving resilient against QT and rate-seeking outflows, underpinning both NII and liquidity strength.

3. Middle Market and Wealth Expansion

Strategic investments in middle-market banking and wealth advisory are driving cross-segment growth and deeper client relationships. The middle-market investment banking team has expanded from 15 to over 200 bankers since 2018, boosting fee generation and market share. Wealth management net new relationships and flows remain robust, with digital account opening now at 76% penetration in Merrill, halving costs and accelerating cycle times.

4. Capital and Risk Management Flexibility

With CET1 capital well above regulatory requirements and a balanced asset sensitivity profile, BAC has flexibility to support growth, return capital, or absorb regulatory changes. The company is running a capital cushion, awaiting Basel III clarity, and expects to continue strong capital return as rules finalize. Asset mix shifts toward hedged Treasuries and ongoing runoff of the HTM book are reducing AOCI risk and supporting NII stability.

5. Credit Normalization and Proactive Risk Actions

Credit trends are normalizing, not deteriorating, with proactive charge-offs and reserving in commercial real estate and consumer cards. The pace of criticized commercial real estate exposures is slowing, and management expects losses to decline in the second half, barring material real estate price shocks.

Key Considerations

This quarter’s results highlight Bank of America’s ability to balance near-term NII pressures with fee-based growth, operational discipline, and strategic capital deployment. The franchise’s core strengths in deposit gathering, digital scale, and cross-segment integration are surfacing as differentiators in a volatile macro and regulatory environment.

Key Considerations:

• Digital Leverage: Automation and digital engagement are lowering cost-to-serve and enabling growth without proportional expense increases.
• Deposit Stickiness: Franchise checking and wealth management deposits remain stable, supporting funding and margin even as rates remain elevated.
• Fee Revenue Momentum: Investment banking and trading outperformance are offsetting NII headwinds, with middle-market and international expansion driving share gains.
• Expense Discipline: Headcount reductions and operational excellence are containing expense growth below inflation, supporting operating leverage.
• Capital Return Flexibility: Excess capital enables continued buybacks and dividends, with regulatory clarity likely to unlock further return potential.

Risks

Primary risks include continued credit normalization, especially in consumer cards and commercial real estate, and the potential for macro shocks to disrupt deposit stability or loan demand. Regulatory uncertainty around Basel III endgame could alter capital requirements or constrain capital return. Prolonged higher rates could pressure NII if deposit costs rise faster than asset yields, while a sharp rate cut cycle could compress margins. Management’s asset sensitivity and capital positioning mitigate some of these risks, but investor attention should remain on credit trends and regulatory developments.

Forward Outlook

For Q2 2024, Bank of America guided to:

• NII approaching $14 billion (FTE), with Q2 expected to be the low point for the year
• Expense decline from Q1 levels as seasonal payroll taxes roll off and digital savings accrue

For full-year 2024, management maintained guidance for:

• Low-to-mid single-digit loan growth and moderate deposit growth in the back half
• Expense trend down through the remainder of the year, supported by digital and operational initiatives

Management emphasized that capital return will remain robust as regulatory clarity emerges, and that NII trajectory is supported by asset repricing, deposit stability, and limited mix shift risk. Key watchpoints remain credit normalization pace and macro rate path.

• Deposit structure expected to remain stable, with rate-seeking behavior largely played out
• Asset mix shift toward hedged Treasuries and shorter duration to manage AOCI risk

Takeaways

Bank of America is leveraging its digital scale, deposit franchise, and cross-segment integration to offset near-term NII headwinds and credit normalization, positioning the company for operating leverage and capital return as regulatory and macro clouds clear.

• Franchise Strength Surfaces: Fee-based businesses and deposit stability are driving resilience and market share gains, despite muted loan growth and credit normalization.
• Expense and Capital Discipline: Digital investments and operational excellence are enabling expense control and supporting robust capital return, with flexibility to absorb regulatory changes.
• Second-Half Inflection Ahead: NII expected to trough in Q2, with back-half growth supported by asset repricing and deposit stabilization; investors should monitor credit trends and regulatory developments for confirmation.

Conclusion

Bank of America’s Q1 2024 results highlight the power of digital scale, deposit franchise depth, and fee-based revenue diversification in navigating a complex macro and regulatory environment. With NII stabilization in sight, disciplined expense management, and ample capital, BAC is positioned to deliver operating leverage and strong capital return as the year progresses.

Industry Read-Through

Bank of America’s outperformance in deposit growth and fee-based revenue, despite QT and muted loan demand, signals that scale, franchise depth, and digital investments are differentiating winners in the banking sector. Peers with weaker deposit franchises or less digital leverage may face greater margin and funding pressure as rate and regulatory uncertainty persists. Industry-wide, commercial real estate credit normalization remains a watchpoint, but proactive reserving and capital flexibility can mitigate tail risks. For capital-markets-heavy banks, the resurgence in investment banking and trading activity underscores the value of balanced business models and cross-segment integration in generating resilient earnings streams.

BAC Financials Banking Digital Deposits Fee Income Capital Return Expense Management