Bank of America profits beat forecasts despite drag from low-yielding bonds

 Third-quarter profits at Bank of America beat expectations, but growth lagged rivals because the bank still has hundreds of billions of dollars of low-yielding bonds that it bought during the pandemic.

Profits at the US’s second-largest bank rose by 11 percent in the third quarter from a year ago to $7.8bn, which was better than analysts had been expecting.

But the growth rate trailed some rivals. Quarterly profits at Wells Fargo and JPMorgan rose by 68 percent and 38 percent respectively.

BofA’s revenue climbed 3 percent in the quarter compared with the same quarter a year ago.

Goldman Sachs reported a 36 percent drop in third-quarter profits, the bank’s eighth straight quarter of falling earnings, as it grapples with a slowdown in fixed-income trading revenues and losses from its pullback from retail banking.

But the bank eked out a year-on-year increase in investment banking revenues for the first time in almost two years, in a sign that the dealmaking drought may be coming to an end.

Goldman said on Tuesday that net income for the quarter was $1.88bn, down from $3bn a year earlier and just shy of analysts’ estimates for around $1.96bn, according to data compiled by Bloomberg.

Johnson & Johnson has raised its forecasts for the full year after it beat expectations on earnings and revenue, partly driven by soaring sales of cancer drugs in the US.

The healthcare company — which sells drugs and medical devices — now expects operating sales of between $84.4bn and $84.8bn in 2023, up from its previous forecast of between $83.6bn and $84.4bn.

J&J also raised its guidance for adjusted diluted earnings per share to between $10.07 and $10.13, compared with its previous estimate of between $10 and $10.10.

In the third quarter, sales rose 6.8 per cent year-on-year to $21.4bn, while diluted earnings per share rose 4.3 per cent to $1.69. Sales of cancer drugs in the US rose by 22.5 per cent year-on-year.

Rite Aid, the smaller pharmacy retail chain, has filed for Chapter 11 bankruptcy protection in an effort to restructure its operations. This move comes as Rite Aid has been struggling with declining sales, operational challenges, and hefty costs associated with opioid lawsuits. With larger competitors like Walgreens and CVS dominating the market, Rite Aid aims to emerge from bankruptcy leaner and with more manageable debt. However, there are concerns about the communities that may no longer be served by a slimmed-down Rite Aid. The company plans to close up to 500 underperforming stores as part of its restructuring plan. It has also secured $200 million in new financing and is considering selling its pharmacy benefit management company, Elixer, to MedImpact for $575 million.

Rite Aid's smaller size has put it at a disadvantage compared to its larger rivals, who have expanded through acquisitions and online healthcare offerings. Additionally, Rite Aid has faced challenges such as lower earnings due to reduced COVID-19 demand, pressure on drug margins from pharmacy benefit managers, competition from online retailers, and shrinkage caused by theft. However, the bankruptcy process will allow Rite Aid to cut costs associated with store leases and reduce its financial risk by shedding a significant amount of debt. This should help the company strengthen its balance sheet, increase earnings, and generate more cash.

It remains to be seen which stores Rite Aid will close and whether these closures will result in pharmacy deserts in rural areas and inner cities. On the other hand, Rite Aid has an opportunity to optimize its store footprint and fill gaps in underserved areas where its competitors are lacking. The closures are expected to primarily affect areas where Rite Aid has a high concentration of stores, such as Pennsylvania, California, and New York.

One of Rite Aid's challenges is the legal fallout from lawsuits alleging the illegal filling of controlled substance prescriptions, including opioids. Similar to other companies involved in opioid litigation, such as Purdue Pharma and Mallinckrodt, Rite Aid will benefit from bankruptcy protection, which typically puts a hold on legal proceedings. However, it's worth noting that certain lawsuits brought by the federal government, such as those under the False Claims Act, may not be subject to this protection.

Overall, Rite Aid's bankruptcy filing presents an opportunity for the company to streamline its operations and improve its financial standing. While there are concerns about store closures and potential impacts on underserved communities, Rite Aid may also be able to strategically position itself in areas where its competitors are less present. The bankruptcy process will help Rite Aid cut costs, reduce debt, and focus on a more sustainable future.  

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