We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
BofA (BAC) to Gain From Rising Rates, Fee Income Growth a Woe
Read MoreHide Full Article
One of the largest U.S. banks – Bank of America (BAC - Free Report) – is well placed to benefit from higher interest rates. This, along with the opening of new financial centers, enhancement in digital capabilities and cost-saving efforts, will likely keep aiding its financials. However, over-dependence on the performance of the capital markets to generate fee income is a concern.
With the Federal Reserve having raised rates thrice already this year and signaling more such hikes to tame inflation, BofA’s net interest income (NII) and net interest yield are expected to witness decent improvements. Given the aggressive rate hike expectations and rise in loan demand, the company is projecting significant NII improvement in the next several quarters.
BAC continues to align its banking centers according to customer needs. The bank is on track to open 500 new centers in new cities and redesign 2,500 centers with technology upgrades. These initiatives, along with the success of Zelle and Erica, have enabled the company to improve digital offerings and cross-sell several products, including mortgages, auto loans and credit cards.
Prudent expense management continues to support the company’s financials. Its expense-saving plan – Project New BAC (launched in 2011) – helped improve overall efficiency and save as much as $8.0 billion in operating expenses annually till the end of 2014. Notably, it has been incurring $14-$15 billion (on average) in operating expenses on a quarterly basis despite undertaking several strategic growth initiatives. While BofA continues to witness steady investments in technology, financial centers, growth markets and people across businesses, expenses are expected to remain manageable in the near term.
Analysts also seem to be optimistic about the company’s prospects. Over the past two months, the Zacks Consensus Estimate for 2022 earnings has been revised marginally upward.
However, we remain concerned about BofA’s dependence on capital markets to generate fee income. Though the global economic slowdown amid the coronavirus-led mayhem provided substantial support to the company’s trading performance in 2020 and most of 2021, the trend began to reverse, starting fourth-quarter 2021 as markets began to normalize.
Trading revenues (constituting almost 20% of the company’s total net revenues) witnessed a year-over-year decline in first-quarter 2022 despite the unexpected rise in volatility. Because of the volatile nature of the capital markets, the performance of BAC’s trading business remains uncertain.
Over the past year, shares of this Zacks Rank #3 (Hold) company have lost 18.2% compared with a 19.7% decline for the industry.
Over the past year, shares of Comerica have rallied 6.2%, while that of M&T Bank have jumped 12.7%.
Over the past 30 days, the Zacks Consensus Estimate for Comerica’s current-year earnings has been revised 1.2% upward, while the same for M&T Bank has moved 2.4% north.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
BofA (BAC) to Gain From Rising Rates, Fee Income Growth a Woe
One of the largest U.S. banks – Bank of America (BAC - Free Report) – is well placed to benefit from higher interest rates. This, along with the opening of new financial centers, enhancement in digital capabilities and cost-saving efforts, will likely keep aiding its financials. However, over-dependence on the performance of the capital markets to generate fee income is a concern.
With the Federal Reserve having raised rates thrice already this year and signaling more such hikes to tame inflation, BofA’s net interest income (NII) and net interest yield are expected to witness decent improvements. Given the aggressive rate hike expectations and rise in loan demand, the company is projecting significant NII improvement in the next several quarters.
BAC continues to align its banking centers according to customer needs. The bank is on track to open 500 new centers in new cities and redesign 2,500 centers with technology upgrades. These initiatives, along with the success of Zelle and Erica, have enabled the company to improve digital offerings and cross-sell several products, including mortgages, auto loans and credit cards.
Prudent expense management continues to support the company’s financials. Its expense-saving plan – Project New BAC (launched in 2011) – helped improve overall efficiency and save as much as $8.0 billion in operating expenses annually till the end of 2014. Notably, it has been incurring $14-$15 billion (on average) in operating expenses on a quarterly basis despite undertaking several strategic growth initiatives. While BofA continues to witness steady investments in technology, financial centers, growth markets and people across businesses, expenses are expected to remain manageable in the near term.
Analysts also seem to be optimistic about the company’s prospects. Over the past two months, the Zacks Consensus Estimate for 2022 earnings has been revised marginally upward.
However, we remain concerned about BofA’s dependence on capital markets to generate fee income. Though the global economic slowdown amid the coronavirus-led mayhem provided substantial support to the company’s trading performance in 2020 and most of 2021, the trend began to reverse, starting fourth-quarter 2021 as markets began to normalize.
Trading revenues (constituting almost 20% of the company’s total net revenues) witnessed a year-over-year decline in first-quarter 2022 despite the unexpected rise in volatility. Because of the volatile nature of the capital markets, the performance of BAC’s trading business remains uncertain.
Over the past year, shares of this Zacks Rank #3 (Hold) company have lost 18.2% compared with a 19.7% decline for the industry.
Image Source: Zacks Investment Research
Major Banks Worth a Look
A couple of better-ranked major banks are Comerica (CMA - Free Report) and M&T Bank (MTB - Free Report) . At present, CMA sports a Zacks Rank #1 (Strong Buy) and MTB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past year, shares of Comerica have rallied 6.2%, while that of M&T Bank have jumped 12.7%.
Over the past 30 days, the Zacks Consensus Estimate for Comerica’s current-year earnings has been revised 1.2% upward, while the same for M&T Bank has moved 2.4% north.