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Can Investment Banking Brace BofA (BAC) in Q4 Earnings?

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The performance of Investment banking, one of the major revenue sources for Bank of America (BAC - Free Report) , is projected to improve in fourth-quarter 2017. This could majorly support the bank’s results scheduled to be released on Wednesday, Jan 17.

Investment banking income comprises underwriting revenues and advisory fees. So, now let’s dig a little deeper to see how these are expected to perform in the to-be-reported quarter.

Underwriting fees, consisting of debt and equity underwriting, are projected to increase. As the interest rate hike is expected to continue, many U.S. companies have been raising fresh debt capital in the recent quarters to avoid higher interest rates later. As debt origination fees account for roughly 40% of total investment banking fees for BofA, this will provide some support.

Also, despite being the seasonally weak quarter for equity issuances globally, fourth-quarter 2017 is likely to be an exception. Strong rally in the equity markets worldwide might have propelled IPOs and follow-on offerings. Therefore, equity underwriting fees are projected to increase for BofA.

Talking about advisory fees, weaker M&A activity in terms of deals closed globally, despite a large number of new M&As announced in the fourth quarter, will have a slight adverse effect. But as BofA is one of the leading players in this space, it might not suffer a huge loss.

Overall, management anticipates investment banking income to be up in mid-single-digits range in the to-be-reported quarter. For this Zacks Rank #2 (Buy) stock, investment banking revenues are accounted in its Global Banking segment. The Zacks Consensus Estimate for the segment revenues of $4.92 billion indicates 8.2% growth on a year-over-year basis.

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

Overall Earnings & Revenue Projections

Notably for BofA, the Zacks Consensus Estimate for earnings of 44 cents reflects 10% growth on a year-over-year basis. Also, the Zacks Consensus Estimate for sales of $21.3 billion indicates a 6.5% increase from the prior-year quarter.
 

Click here to know more about the factors that could influence BofA’s overall results.

Our Take

In a tough operating environment, modest improvement in BofA’s investment banking revenues will likely support top-line growth.

Earnings Schedules of Other Major Banks

Among the major banks, Citigroup (C - Free Report) and Comerica Incorporated (CMA - Free Report) are scheduled to release on Jan 16, while U.S. Bancorp (USB - Free Report) will report on Jan 17.

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