By Niket Nishant and Saeed Azhar

(Reuters) -Bank of America’s second-quarter profit dropped as higher deposit costs pushed its interest income lower, but the results beat analysts’ estimates, boosted by investment banking and trading.

Shares climbed more than 4% after BofA also forecast better-than-expected net interest income (NII) – the difference between what banks earn on loans and pay out on deposits – for the fourth quarter.

CEO Brian Moynihan cited growth in new consumer checking accounts for the 22nd consecutive quarter in a conference call with analysts. He began the call by wishing former U.S. president Donald Trump speedy recovery after an assassination attempt on Saturday.

The bank’s new interest income target factors in three potential interest rate cuts by the Federal Reserve of 25 basis points in September, November and December, according to a bank presentation.

David Wagner, a portfolio manager at Aptus Capital Advisors, said Bank of America was able to grow in some areas despite a difficult environment for interest income.

“One thing that stood out to me was that BAC’s guidance assumes three cuts, while the market is only pricing in two cuts,” he said.

INVESTMENT BANKING

Investment banks have brought in more underwriting fees as capital markets resurged. A resilient U.S. economy has encouraged companies to raise capital by selling stocks and issuing bonds in recent months.

Mergers and acquisitions are also gaining momentum, boosting advisory fees for investment banks. BofA’s investment banking fees jumped 29% to $1.6 billion in the second quarter, echoing results at peers.

Underwriting income in the second quarter this year jumped 32%, while fees from syndication surged 77%.

Sales and trading revenue jumped 7% to $4.7 billion, growing for the ninth consecutive quarter year-on-year, as equities jumped.

“The interest rate environment has settled down a little bit, and obviously there’s a significant amount of geopolitical and election uncertainty around the world, but that tends to be an environment where clients reposition,” CFO Alastair Borthwick told journalists on a conference call.

“That tends to be a reasonably good environment for our sales and trading business.”

The second biggest U.S. lender earned $6.9 billion, or 83 cents per share, in the quarter ended June 30, 7% lower than a year earlier, but above expectations of 80 cents per share, according to LSEG.

Its wealth and investment management unit also fetched 6% higher revenue and saw 10% growth in client balances to a record of more than $4 trillion.

STRONG FORECAST

The cost of preventing a deposit outflow has eroded banks’ gains from the rising interest they are charging borrowers.

Banks are shelling out more on deposits as interest rates are at their highest since 2007, which have boosted returns on bonds, making alternatives such as money market funds more attractive.

BofA’s NII fell 3% to $13.7 billion in the second quarter. Provisions for credit losses rose to $1.5 billion from $1.1 billion a year earlier.

But executives predicted a recovery in the second half. They forecast net interest income would rise to $14.5 billion in the fourth quarter, above LSEG estimates of $14.4 billion, as the bank reprices mortgage and auto loans.

The forecast for increased NII solidifies earlier comments signaling that interest income would reach a trough in the fourth quarter, said Stephen Biggar, banking analyst at Argus Research.

BofA shares have climbed almost 30% this year, outperforming rivals JPMorgan and Wells Fargo.

(Reporting by Niket Nishant in Bengaluru and Saeed Azhar in New York; additional reporting by Michelle Price in Washington; editing by Lananh Nguyen, Shinjini Ganguli and Nick Zieminski)

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