NEW YORK - A bank boss wondering where to invest the next dollar needn’t think hard. Big lenders that have reported second-quarter earnings, including Bank of America on Wednesday, are all benefiting from solid growth in the consumer business, a welcome distraction from weak trading and investment banking. It helps that Main Street customers are happy to take the little they’re given.

Retail banking is lucrative. Bank of America’s consumer division, for example, generates an annualized return on capital of 36%, according to its own measure, more than double the overall rate. JPMorgan’s clocks in at 31%. That looks even better as trading gets worse. Markets-based revenue at the bank led by Brian Moynihan slumped 10% in the second quarter from a year earlier, worse than at JPMorgan, Goldman Sachs and Citigroup.

In theory, what depresses trading, such as fears of a weakening economy, should also vex consumers eventually. There’s no sign of that yet, but banks are bracing for the possibility, especially if the Federal Reserve cuts benchmark interest rates. Bank of America trimmed its guidance on net interest income for this year. Along with many peers, it also said its net interest margin – the difference between interest income and how much it pays out – shrank in the second quarter.

Customers who helped on the way up may be less valuable on the way down. When interest rates were rising in the early 2000s, lenders gave about half the hike to depositors. This time, it has been less. Banks talk about being “disciplined,” but their providers of funds aren’t obviously pushing for better deals either. Bank of America pays consumers just 0.05 percentage point more now than a year ago, and yet non-interest-earning accounts grew 6%. Loan yields will fall, but deposit expenses can’t get much lower.

Banks are also giving customers nonpecuniary reasons to stick around, like app services and free financial analysis. The bet is that millennial clients in particular, of which Bank of America has 16 million, care more about that than higher interest rates available from online and branchless rivals such as Goldman’s Marcus. That remains to be seen, but even if consumer banking is peaking, loyal and supine customers are good assets to have.

CONTEXT NEWS

- Bank of America on July 17 reported $7.3 billion of net income for the second quarter, an 8% increase from a year earlier. Earnings per share of 74 cents beat the 71 cents expected by analysts, according to an average compiled by Refinitiv.

- Revenue increased about 2% from second quarter 2018 to $23.1 billion, while expenses remained flat. Average deposits grew 6% year-on-year, faster than in the previous quarter. The 4% rate of loan growth was unchanged.

- Bank of America’s net interest yield – the difference between what it receives on loans and pays on deposits in its banking businesses – slipped slightly from the previous quarter to just over 2.4%.

- Trading revenue of $3.3 billion was 10% lower than the same period a year earlier, a worse result than at rivals JPMorgan, Goldman Sachs and Citigroup, which reported earnings in the preceding two days.

(Editing by Jeffrey Goldfarb and Amanda Gomez)

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