What's going on?
Bank of America reported third-quarter results that beat expectations on Monday – with profit up by a third compared to the same time last year.
What does this mean?
Like its US rivals Citigroup and Wells Fargo, Bank of America was helped along by a rising gap between what it pays out in interest to savers and what it charges borrowers on loans. The bank also set aside less than expected for loan losses (banks have to sit on some cash in anticipation of a few people defaulting), freeing up cash for other uses.
Why should I care?
For markets: An investment banking staycation.
Summer break happens for investment banks too – people are usually otherwise occupied traveling (and Instagramming about it), so fewer big deals get done. But this year investment banking might’ve skipped the vacay. With a trade war raging and its ramifications reverberating worldwide – not to mention Italy’s rogue spending plans causing a commotion in Europe – investors might’ve felt the need to chop and change their portfolios. As investment banks get paid a percentage commission on the trading they do, that should mean sunshine. But Bank of America’s trading revenue was a mixed bag – it made 5% less than the same time last year from bond trading while its stock trading take rose 3%.
For you, personally: Opportunity knocks for savers.
When rates rise, as has been the case recently, borrowers pay more on their loans and savers get more on their deposits. But the relative speeds at which interest paid and interest received go up can cause banks headaches. Competition between banks enticing savers to park their cash can put pressure on the nice, cushy space between the two rates. In the UK, Goldman Sachs’ Marcus is offering a savings account with an attractive 1.5% interest – seemingly forcing other banks, like the Royal Bank of Scotland, to match it, not wanting to be outdone and lose customers. It’s a saver’s market!