Bank of America Corp reported an $8.8 billion second-quarter loss, its worst ever, and posted a drop in lending margins as low interest rates weigh on the largest US bank.

The results were in the middle of the range the bank forecast in late June when it announced an $8.5 billion settlement with mortgage investors.

The bank's shrinking interest income underscores the difficulties Chief Executive Brian Moynihan faces even as the bank moves past its mortgage problems.

"It's a slow grind for them," said David Hendler, senior analyst at CreditSights in New York.

Bank of America will not likely be able to boost its dividend for some time, analysts said.

The bank's interest income is under pressure. Its loan book shrank, unlike many of its rivals, and the longer-term rates at which banks can lend are falling relative to the short-term rates at which banks borrow.

At BofA, these factors translated to a 13 per cent decline in interest income and a sizable 0.17 per centage point decline in lending margins from the first quarter.

JPMorgan Chase & Co reported a similar shrinking in its lending margins last week, which pressured shares of many regional lenders. Analysts had expected rising interest rate margins to fuel higher bank earnings next year.

Bank of America did post improving credit losses, and some of its businesses, including credit card lending, posted higher profits.

For the second quarter, BofA reported a net loss of $8.8 billion, or 90 cents per share, compared with net income of $3.1 billion, or 27 cents per share, a year earlier.

Analysts on average expected a loss of 90 cents per share, according to Thomson Reuters I/B/E/S.

On June 29, the bank announced it would take a series of big one-time charges in the quarter related to a settlement with private investors who demanded the bank repurchase toxic home loans held in mortgage-backed securities.

Excluding the charges, the bank earned $3.7 billion, or 33 cents per share, in the second quarter.

CARDS, INVESTMENT BANKING IMPROVE

The results highlight that many of the bank's business units -- most notably its credit card and investment banking units -- are becoming more profitable.

Global card services reported income of $2 billion, up from $826 million a year ago; global banking and markets income rose to $1.6 billion from $1 billion.

BofA's consumer real estate services unit lost $14.2 billion in the quarter, continuing a series of losses for the business dating back to the 2008 financial crisis.

Overall, revenue tumbled 54 per cent to $13.5 billion due to a provision taken as part of the mortgage settlement. Excluding that provision, revenue was $26.5 billion.

Like its peers, including JPMorgan and Citigroup Inc, BofA reported improving credit quality as loan losses continued to decline.

At BofA, net charge-offs -- loans the bank is writing off -- declined for the fifth straight quarter, and the bank lowered its loan loss provision.

Earlier this year the Federal Reserve denied permission for BofA to raise its dividend later this year. The bank currently pays 1 cent per share quarterly.

Goldman's income jumps but still misses estimates

Goldman Sachs's earnings more than doubled in the second quarter, but a slump in its bond trading business kept its bottom-line results well below what analysts were expecting.

The investment bank earned $1.05 billion in the three months ending in June, up from $453 million in the same period a year ago. Per-share earnings were $1.85, well below the $2.35 analysts surveyed by FactSet were expecting. Year-ago earnings per share were 78 cents.

The bank's shares lost 3.1 per cent to $125.44 in pre-market trading.

The bank's troubles were largely due to a sharp drop in bond and currency trading, as clients held back because of worries over the European debt crisis and a possible downgrade of the US government's debt rating.

Rivals JPMorgan Chase & Co. and Citigroup Inc. also posted declines in bond and currency trading, but the impact was bigger at Goldman, which relies on trading as a key portion of its revenue. Goldman's revenue from bond and currency trading plunged 53 per cent, to $1.6 billion from $3.4 billion. Goldman also lost money on its investment in the Industrial and Commercial Bank of China Ltd.

Revenue fell 18 per cent to $7.3 billion. That missed analysts' expectations of $8.2 billion.

There were bright spots for the investment bank, where revenue soared 54 per cent on mergers and acquisitions and underwriting for other deals.

Goldman has done relatively well throughout the financial crisis and its aftermath, earning a profit every quarter except for three months in late 2008. At the same time the bank has been a lightning rod for wrath from the public and lawmakers, who see the storied investment bank as a symbole of risky practices in the banking industry that led to the financial crisis.

Goldman was able to increase net income even as revenue fell because it cut costs, though it didn't give many details. It set aside $3.2 billion for employee pay, 16 per cent less than a year ago. Other expenses were down 18 per cent, though that was partly because Goldman had to pay a record fine to regulators last year to settle charges that it misled investors about mortgage securities.

Last month the bank said that it could lay off more than 200 employees, citing economic reasons, beginning later this year.