By Niket Nishant and Elizabeth Dilts Marshall

(Reuters) -Bank of America Corp reported a better-than-expected 30% jump in quarterly profit on Wednesday, driven by loan growth and record-breaking M&A volumes in its investment banking business.

Flush with cash and emboldened by soaring stock market valuations, large buyout funds, corporates and financiers struck billions of dollars worth of deals in the fourth quarter, generating record advisory fees of $850 million for BofA, up 55% from a year earlier.

Loans grew during the quarter across every category except home equity, with average loans and leases, excluding those from the government’s Paycheck Protection Program, up 3.4% from the prior quarter and 3.2% from a year ago, the bank said.

That compared with a 6% rise in average loans at JPMorgan Chase & Co. In contrast, Wells Fargo & Co reported a 3% drop, although it noted positive trends to the upside in the final six weeks of 2021.

2021 started with “green shoots” and culminated “with $50 billion in record loan growth this quarter,” Bank of America’s Chief Executive Brian Moynihan said on a call with analysts.

“We note these borrowers, both consumer and commercial, have strong capacity to continue to borrow,” he said.

The bank also released $851 million from its reserves for pandemic-related losses that did not materialize.

Combined spending on credit and debit cards grew 22% to $212 billion in the latest quarter, and while consumers continue to pay down balances, they also opened about 1 million new credit cards with the bank last quarter.

Overall, profit rose to $6.77 billion, or 82 cents per share for the quarter ended Dec. 31, beating analyst estimates of 77 cents per share, according to the IBES estimate from Refinitiv.

The bank reported revenue, net of interest expense, of $22.1 billion, up 10% from a year earlier.

Bank of America’s net interest income (NII) – a metric that measures the difference between the interest earned on loans and paid out on deposits – rose nearly 11% to $11.41 billion, helped by significant growth in loans and deposits.

Chief Financial Officer Alastair Borthwick expects NII to rise by a “couple hundred million” in the first quarter this year, compared with the fourth quarter last year, “and grow nicely each subsequent quarter in 2022.”

Morgan Stanley also beat quarterly profit expectations on Wednesday, capping a mixed earnings season for the nation’s largest banks.

WAGE INFLATION

Revenue from the bank’s equities division was up 3% in the quarter, while fixed income trading was down 10% as stock prices continued to soar despite temporary hiccups from the Omicron coronavirus variant and a hawkish Fed.

Non-interest expenses rose 6%, driven by higher revenue-related compensation.

Bank of America, like other big investment banks and wealth managers, saw higher expenses from bonuses and other revenue-based compensation as bankers and financial advisers made the most of market volatility in the second-half of the year.

Unlike some peers, Bank of America said it expected its expenses to be flat for 2022 compared with 2021 based on estimations that some costs related to the pandemic will ease.

“What’s going to come out over time are some of the stubborn COVID costs,” Borthwick said on a call with reporters.

Borthwick said it now costs more to run a branch. The extra costs come from masks, hand sanitizer, new ventilation systems, extra cleaning and, in some cases, additional benefits for frontline workers.

However, he said the bank expects additional cost savings from more customers using digital banking.

Rebutting some analyst skepticism, Moynihan said he was confident the bank would be able to continue to invest in technology and compensation packages attractive enough to recruit talent in a tight job market and keep a lid on expenses.

(Reporting by Niket Nishant, Noor Zainab Hussain in Bengaluru and Elizabeth Dilts Marshall in New York; Additional reporting by Manya Saini; Editing by Anil D’Silva, Nick Zieminski and Marguerita Choy)

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