Bank of America leans on Wall Street as high rates pose challenges to Main Street operations

Second-quarter profits at Bank of America (BAC) fell 7% from a year ago as its consumer operations wrestled with higher interest rates, but it was able to churn out more investment banking fees and trading revenue. The divergence between the businesses at Bank of America that serve Main Street and Wall Street reinforced a dominant trend this earnings season for the nation’s biggest financial institutions. Higher interest rates and elevated deposit costs are eating away at more traditional consumer banking margins, forcing giant banks to lean more heavily on their trading and investment banking as dealmaking shows new signs of life. "The strength and earnings power of our leading consumer banking business is complemented by the growth and profitability of our global Markets, global banking, and wealth management businesses," said Bank of America CEO Brian Moynihan. Bank of America Chairman and CEO Brian Moynihan. REUTERS/Elizabeth Frantz (REUTERS / Reuters) Bank of America’s net income fell to $6.89 billion, which was slightly better than expectations, while rising 3% from the first quarter. Its total revenue of $25.37 billion rose slightly from a year ago. A key measure of lending revenue known as net interest income fell more than 3% from a year ago and more than 2% from the previous quarter, to $13.70 billion. This margin — which measures the difference a bank earns by making loans and paying out depositors — has been tightening at many big banks due to higher rates and elevated funding costs. This same measure also fell sequentially at JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) as their customers continued migrating to higher-yielding deposit products like CDs. There were other signs of challenges for Bank of America and its consumer borrowers. It set aside more money for future loan losses when compared with a year ago, a sign that it expects credit conditions to worsen. Its credit-card charge offs more than doubled from a year earlier and more than 6% from the last quarter, another signal that more of its customers are having trouble paying down their bills. But there were some bright spots. Bank of America expects net interest income to rise later this year as the Federal Reserve starts to lower interest rates and the bank replaces under-earning bonds and fixed rate loans with higher-yielding assets. It said it expected fourth quarter net interest income to be $600 million higher than its second quarter figure. And its Wall Street operations really stood out. Investment banking fees jumped 28% from a year ago while its equities trading rose nearly 20%. "The fundamental trends have been strong capital markets and weak net interest income," Portales Partners founder Charlie Peabody told Yahoo Finance Monday, referring to the trends of bank earnings season thus far. Story continues "The question is if that spread income is going to reflect positively in the second half of the year." Investment banking fees and trading revenue also jumped at JPMorgan Chase, Citigroup, Wells Fargo and Goldman Sachs. Bank of America's stock rose more than 2% in pre-market trading Tuesday. As of Monday night it was up 20% so far this year. David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance. Click here for in-depth analysis of the latest stock market news and events moving stock prices. Read the latest financial and business news from Yahoo Finance View comments