Recasts paragraph 1 with profit beat, adds details on net interest income throughout

Jan 14 (Reuters) - Bank of America BAC.N beat estimates for fourth-quarter profit, as its traders capitalized on volatile markets, while it brought in record income from interest, sending its shares up about 2% in trading before the bell.

The bank expects its first-quarter net interest income (NII) to rise 7%. It also reiterated a 5% to 7% NII growth forecast for the fiscal year 2026.

Softening U.S. labor demand, political gridlock and concerns over a potential AI-driven stock bubble rattled the stock markets in the fourth quarter, prompting investors to reshuffle their portfolios, while speculation about the Federal Reserve's rate cuts further boosted trading.

Bank of America's sales and trading revenue rose 10% to $4.5 billion in the quarter, in line with CEO Brian Moynihan's forecast last month.

"With consumers and businesses proving resilient, as well as the regulatory environment and tax and trade policies coming into sharper focus, we expect further economic growth in the year ahead," Moynihan said in a statement.

"While any number of risks continue, we are bullish on the U.S. economy in 2026."

The results capped a positive year for the bank. Its shares climbed over 25% in 2025, beating the broader S&P 500 index .SPX, but lagging rivals JPMorgan Chase JPM.N and Wells Fargo WFC.N.

JPMorgan reported a fourth-quarter profit on Tuesday that beat Wall Street estimates, helped by a stronger performance by its traders.

Volatile markets tend to benefit investment banks as their trading desks generate higher revenue from increased client activity.

Bank of America reported a net income of $7.6 billion, or 98 cents per share, in the three months ended December 31, compared with $6.8 billion, or 83 cents per share, a year earlier.

Analysts were expecting a profit of 96 cents per share, according to estimates compiled by LSEG.

INTEREST INCOME FOCUS

U.S. banks have benefited from the repricing of fixed-rate assets and securities portfolios over time into higher-yielding assets.

Additionally, the Federal Reserve's rate cuts in late 2025 helped banks reduce deposit costs, allowing lenders such as Bank of America to increase their earnings. Lower interest rates can also spur borrowing, as consumers want to take out more loans at attractive prices.

Average loans and leases at the bank rose 8% to $1.17 trillion from a year earlier, with growth seen across every segment of the business.

Bank of America's net interest income — the difference between what it earns on loans and pays out on deposits — rose 9.7% to $15.75 billion in the quarter from a year earlier.

(Reporting by Pritam Biswas in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen and Shinjini Ganguli)

((Pritam.Biswas@thomsonreuters.com;))