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Strong Investment Banking to Support BofA (BAC) Q4 Earnings

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Performance of investment banking (“IB”) business, one of the key revenue sources of Bank of America (BAC - Free Report) , is likely to have been impressive in fourth-quarter 2020. Hence, this is expected to provide much needed support to the bank’s results, scheduled to be announced on Jan 19.

IB fees mainly comprises advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s check how these are likely to have been in the to-be-reported quarter.

After a disappointing first-half 2020 performance largely due to the coronavirus pandemic, a strong recovery in the deal making activities was witnessed. During the fourth quarter, the number of announced global M&As jumped. Thus, as M&A activity rebounded during the quarter, BofA’s advisory fees are likely to have been positively impacted. Also, the bank — which is one of the leading players in this space — has been focusing on further improving the M&A business. This might have provided some leverage as well.

Further, in light of the pandemic, many companies began business restructuring process with an aim to maintain profitability. This is likely to have aided rise in BofA’s advisory fees.

Moreover, IPO activity was robust during the fourth quarter of 2020. In fact, it was one of the busiest in the recent past. Additionally, driven by upbeat equity markets performance, several companies shored up their balance sheets through follow-up equity issuances. Likewise, bond issuance volume has been strong in the fourth quarter, along with decent growth in debt issuances. Hence, BofA’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have improved in the fourth quarter.

At an investor conference in December 2020, the company’s CEO, Brian Moynihan, said that IB fees in fourth-quarter are likely to be 10-15% higher than a year ago.

BofA’s IB revenues are accounted in the Global Banking segment. The Zacks Consensus Estimate for the segment’s net revenues of $4.44 billion suggests a 13.7% decline from the year-ago number.

Q4 Earnings & Sales Expectations

The Zacks Consensus Estimate for BofA’s fourth-quarter earnings of 56 cents indicates a 24.3% decline from the prior-year reported number. Likewise, the consensus estimate for sales of $20.4 billion suggests 8.7% fall.

Apart from IB revenues, few other major factors are likely to have influenced BofA’s overall performance during the fourth quarter.


Our Viewpoint

During the fourth quarter, the operating backdrop was challenging. Weak lending scenario and low interest rates are likely to have hurt this Zacks Rank #3 (Hold) stock’s top-line growth to great extent. However, solid IB performance, along with robust trading performance, might have offered support.

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

Earnings Release Dates for Other Major Banks

U.S. Bancorp (USB - Free Report) is scheduled to release quarterly results on Jan 20, while KeyCorp (KEY - Free Report) and Truist Financial Corporation (TFC - Free Report) will release numbers on Jan 21.

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