Bank of America records a huge jump in profits due to higher interest rates

Bank of America reported profits of $7.4 billion last quarter, up about 20 percent from a year earlier.

Revenue grew more than 10 percent, to $25.2 billion in the second quarter.

Bank of America holds nearly $2 trillion in customer deposits, but like most banks, it’s seeing a decline as customers move their money into higher-yielding accounts: The bank’s average deposits fell about 7 percent in the second quarter, compared to a year ago.

The Bank also continued to make progress on the goal it set earlier this year: to reduce its headcount through attrition. The bank, which had 288,000 employees in 2010, is now down to about 213,000 (excluding summer interns), about 4,000 fewer than in the previous quarter. “This sets us up for a good trajectory on expenses going forward,” said Mr. Borthwick.

Brian Moynihan, the bank’s CEO, called the quarter one of the strongest in the bank’s history.

“We continue to see a healthy US economy growing at a slower pace, with a flexible labor market,” he said. That echoed comments from peers at other major banks, and comes as economists debate the possibility of a so-called soft landing, in which inflation subsides without significant job losses or a significant slowdown in economic growth. The bank said customer spending on credit and debit cards rose 3 percent to $226 billion.

Notably, the lender’s investment banking business rebounded in the second quarter, after a sharp decline in deal-making cast a shadow over the industry. The investment banking unit’s fees increased 7 percent, to $1.2 billion, and its trading revenue increased 3 percent, to $4.3 billion.

“This is probably the highlight of the quarter, I think, in the global banking business,” said Alastair Borthwick, the bank’s chief financial officer. “We’ve had a little bit of a pickup in the capital markets, and that was a welcome sign for us.”

America’s four largest banks — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — reported profits of nearly $30 billion for the second quarter, up more than 30 percent from a year ago.

But large penalties for misdeeds remain a routine expense at the largest banks. Last week, Bank of America was fined $150 million by federal regulators for charging its customers improper fees and denying them promised sign-up bonuses. The bank reported $276 million in litigation costs in the most recent quarter, up from $89 million in the previous quarter, “driven by agreements reached on consumer regulatory matters.”

Banks are also preparing to bill the failures of three regional banks this year. Bank of America said its expenses in the second half of this year could include $1.9 billion owed if the FDIC completes an assessment of banks to cover the costs of uninsured deposit protection for failing banks.

Analysts will be watching closely Wednesday’s results from Goldman Sachs, which has struggled to recover from an ill-fated foray into consumer banking. They will also scrutinize smaller banks such as Western Alliance as the leaders of those lenders try to shake off the effects of bank failures this year that have thrown the entire regional banking sector into turmoil.