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Four key takeaways from Bank of America’s third quarter

commodities trading

Bank of America grinded out a small profit, beating analyst expectations despite massive litigation costs related to its mortgage business. All-in-all, it was a good quarter for the bank, knowing that the $5.8bn in charges were already on the books.

BofA traders outplayed the competition, kind of

Recent interest rate chatter and Bill Gross’s surprise departure from Pimco led to more volatility in the fixed income market in Q3, but Bank of America traders did better than the rest, at least so far.

When excluding the value of its own debt, fixed income revenues and JPMorgan and Citigroup were up marginally – 1.2% and 6.7%, respectively – in the third quarter. Bank of America, meanwhile, saw an 11% jump in fixed income sales and trading revenue to $2.25bn. And that’s despite the fact that BofA doesn’t rely as much as other banks on FX and rates revenue, which tend to spike during in volatile markets, like we saw in the third quarter.

However, Bank of America had a very poor year in fixed income in 2013, so it didn’t have as steep a hill to climb as other banks. The same thing happened in Q2, when the bank posted a 5% increase in FICC revenue when others posted declines. So this was more of a getting back on their feet quarter.

Equities trading revenue was up too – a 6% increase year-over-year to $1.03bn.

Overall, Bank of America’s global markets business reported net income of $769m in the third quarter, compared to a loss of $875 million a year ago. BofA traders did well.

Job cuts still coming

Not surprisingly, Bank of America continues to cut headcount. They employ 18,400 fewer people than they did a year ago, a 7.4% headcount reduction, and cut more than 3,000 jobs in the last quarter alone. However, the majority of the cuts took place in their legacy and mortgage businesses, rather than in front office revenue-generating units.

Compensation down, but not for all

Total expenses were up over $3 billion year-over-year, but when you pull out litigation costs, Bank of America non-interest expenses declined by $1.1 billion, driven partially by lower compensation costs across the firm.

Investment banking fees were up slightly year-over-year, but down 17% compared to the second quarter due primarily to lower debt and equity underwriting fees. Like other firms, the investment bank was rescued by its advisory business, which booked $316 million in fees, up from $264m last quarter and $255m a year ago.

Record wealth management performance

Bank of America’s wealth management business booked record profit of $813m, compared to $720m in the third quarter of 2013. Pay was up – expenses increased 5%, due mainly to rising compensation costs – but expenses as a proportion of revenue were down slightly. So they got paid more, but received a smaller percentage of the pot.

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