By Arasu Kannagi Basil and Nupur Anand
(Reuters) -Bank of America's third-quarter profit dropped as it paid more to customers to hold onto their deposits, although its results beat estimates, driven by strong activity in investment banking and trading.
BofA's investment banking fees jumped 18% to $1.4 billion, compared with a year earlier, bolstered by a rebound in activity in recent months as improving confidence spurred clients to issue debt and equity.
CEO Brian Moynihan called the earnings "solid," citing growth in investment banking, asset management fees, and sales and trading revenue.
"We also continue to benefit from our investments in the business," Moynihan said in a statement.
A revival in mergers and acquisitions has also boosted advisory fees, while the Federal Reserve's interest rate cut last month could spur even more dealmaking.
Shares of the bank rose 1% in premarket trading.
The earnings mirror those of rival JPMorgan Chase and Wells Fargo, whose results last week surpassed expectations.
BofA's underwriting income jumped 39.7% in the quarter, while syndication fees rose 31%.
Last month, Moynihan said he expected investment banking revenue to be broadly steady.
Sales and trading revenue jumped 12% to $4.9 billion, the 10th consecutive quarter of year-on-year growth, as equities jumped 18% while fixed income, currencies and commodities rose 8%.
Equities trading was bolstered by buoyant markets. Stocks rallied in the third quarter as investors speculated that the Federal Reserve would cut interest rates and spur economic activity.
BofA's wealth and investment management revenue climbed 8% to $5.8 billion and saw client balances jump 18% to $4.2 trillion, thanks to rising market valuations and client flows.
NII SHRINKS
However, BofA's net interest income (NII) - the difference between what a bank earns on loans and pays out on deposits - fell 3% to $14 billion in the third quarter from a year earlier. But it climbed 2% from the second quarter.
Banks have been paying out higher interest rates amid intense competition for deposits to prevent customers from fleeing to lucrative alternatives such as money market funds.
BofA's provision for credit losses increased to $1.5 billion in the quarter from $1.2 billion a year earlier.
Higher interest rates are pressuring borrowers and increasing risks of defaults, prompting banks to build bigger provisions for cover for such loan losses.
Still, Chief Financial Officer Alastair Borthwick said the asset quality was solid.
The second-largest U.S. bank's net income fell to $6.9 billion, or 81 cents per share, from $7.8 billion, or 90 cents per share, a year earlier.
Analysts on average expected BofA to earn 77 cents per share, according to estimates compiled by LSEG.
(Reporting by Arasu Kannagi Basil in Bengaluru and Nupur Anand in New York; Editing by Lananh Nguyen and Anil D'Silva)