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Rates, Trading to Aid BofA (BAC) Q1 Earnings, Provisions to Hurt
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Bank of America (BAC - Free Report) is scheduled to announce first-quarter 2023 earnings on Apr 18, before the market opens. The higher interest rate regime is likely to have bolstered the company’s net interest income (NII) as it is the most interest rate sensitive among its peers.
Supported by a decent lending backdrop, BAC is also expected to have witnessed an expansion of its net interest margin (NIM) during the first quarter. Per the Fed’s latest data, demand for real estate loans and consumer loans improved in January and February, while commercial and industrial loan demand was soft. However, following the bank runs in the first week of March, loan demand is likely to have decelerated as recessionary fears gained ground.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.62 trillion, suggesting a 5.6% decline from the year-ago reported number. Our estimate for the metric is $2.59 trillion, indicating a 7% fall.
Continuing with its hawkish monetary policy stance, the Federal Reserve raised the interest rates by another 50 basis points during the quarter. The policy rate has thus reached a 15-year high of 4.75-5%. While this is likely to have had a favorable impact on BofA’s NIM and NII, the inversion of the yield curve in the March-ended quarter is expected to have weighed on it to some extent.
Management expects NII for the first quarter to be approximately $14.4 billion. The Zacks Consensus Estimate for NII (FTE basis) of $14.45 billion suggests a 23.7% jump. Our estimate for NII (FTE) implies a rise of 23.6% to $14.44 billion.
Other Key Factors to Impact Q1 Results
Trading Income: Like 2022, market volatility and client activity remained robust during the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation led to ambiguity among investors.
These factors led to heightened volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, BofA is likely to have witnessed growth in trading revenues this time.
Nonetheless, it will be difficult to compare with last year's quarter numbers, which were very impressive. The Zacks Consensus Estimate for trading revenues of $4.1 billion suggests a decrease of 13% from the prior-year quarter’s reported number. Our estimate for the metric is $4.06 billion.
Investment Banking (IB) Fees: Global deal-making remained dismal for the fifth consecutive quarter. Raging inflation, geopolitical tensions, equity markets rout, higher interest rates and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value crashed during the first quarter. So, BofA’s advisory fees are likely to have been adversely impacted.
For similar reasons, both IPOs and follow-up equity issuances dried up. Also, bond issuances are likely to have been muted. Hence, BAC’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been hurt during the to-be-reported quarter.
The Zacks Consensus Estimate for IB income of $1.13 billion indicates a plunge of 22.4% from the prior-year quarter level. We project IB income to be $1.06 billion.
Expenses: Though the bank continues to digitize operations, upgrade technology and expand into newer markets by opening branches leading to higher related costs, its prior efforts to improve operating efficiency are likely to have resulted in manageable expense levels in the to-be-reported quarter.
Management anticipates non-interest expenses to be $16 billion in the quarter on seasonally elevated payroll expenses of $400-$500 million and higher FDIC insurance costs of $125 million.
Our estimate for non-interest expenses stands at $16.07 billion, implying an increase of 4.9% on a year-over-year basis.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, BAC is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $1.14 billion.
The Zacks Consensus Estimate for non-performing loans of $4.6 billion implies a slight decrease year over year. Our estimate for the metric is pegged at $4.63 billion, suggesting a marginal increase.
What the Zacks Model Shows
Our proven model does not predict an earnings beat for BofA this time around. This is because it doesn’t have the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for BofA is -3.36%.
Zacks Rank: BAC currently carries a Zacks Rank #4 (Sell).
Bank of America Corporation Price and EPS Surprise
The Zacks Consensus Estimate for first-quarter earnings is pegged at 80 cents, which has moved 1.2% lower over the past seven days. Our estimate for earnings is 75 cents.
The consensus estimate for sales of $25.24 billion indicates 9.7% growth. Our estimate for sales is $24.62 billion, reflecting a rise of 6%.
Major Banks to Consider
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to release first-quarter 2023 earnings on Apr 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.58%.
BK’s quarterly earnings estimates have remained unchanged over the past week.
Image: Bigstock
Rates, Trading to Aid BofA (BAC) Q1 Earnings, Provisions to Hurt
Bank of America (BAC - Free Report) is scheduled to announce first-quarter 2023 earnings on Apr 18, before the market opens. The higher interest rate regime is likely to have bolstered the company’s net interest income (NII) as it is the most interest rate sensitive among its peers.
Supported by a decent lending backdrop, BAC is also expected to have witnessed an expansion of its net interest margin (NIM) during the first quarter. Per the Fed’s latest data, demand for real estate loans and consumer loans improved in January and February, while commercial and industrial loan demand was soft. However, following the bank runs in the first week of March, loan demand is likely to have decelerated as recessionary fears gained ground.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.62 trillion, suggesting a 5.6% decline from the year-ago reported number. Our estimate for the metric is $2.59 trillion, indicating a 7% fall.
Continuing with its hawkish monetary policy stance, the Federal Reserve raised the interest rates by another 50 basis points during the quarter. The policy rate has thus reached a 15-year high of 4.75-5%. While this is likely to have had a favorable impact on BofA’s NIM and NII, the inversion of the yield curve in the March-ended quarter is expected to have weighed on it to some extent.
Management expects NII for the first quarter to be approximately $14.4 billion. The Zacks Consensus Estimate for NII (FTE basis) of $14.45 billion suggests a 23.7% jump. Our estimate for NII (FTE) implies a rise of 23.6% to $14.44 billion.
Other Key Factors to Impact Q1 Results
Trading Income: Like 2022, market volatility and client activity remained robust during the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation led to ambiguity among investors.
These factors led to heightened volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, BofA is likely to have witnessed growth in trading revenues this time.
Nonetheless, it will be difficult to compare with last year's quarter numbers, which were very impressive. The Zacks Consensus Estimate for trading revenues of $4.1 billion suggests a decrease of 13% from the prior-year quarter’s reported number. Our estimate for the metric is $4.06 billion.
Investment Banking (IB) Fees: Global deal-making remained dismal for the fifth consecutive quarter. Raging inflation, geopolitical tensions, equity markets rout, higher interest rates and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value crashed during the first quarter. So, BofA’s advisory fees are likely to have been adversely impacted.
For similar reasons, both IPOs and follow-up equity issuances dried up. Also, bond issuances are likely to have been muted. Hence, BAC’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been hurt during the to-be-reported quarter.
The Zacks Consensus Estimate for IB income of $1.13 billion indicates a plunge of 22.4% from the prior-year quarter level. We project IB income to be $1.06 billion.
Expenses: Though the bank continues to digitize operations, upgrade technology and expand into newer markets by opening branches leading to higher related costs, its prior efforts to improve operating efficiency are likely to have resulted in manageable expense levels in the to-be-reported quarter.
Management anticipates non-interest expenses to be $16 billion in the quarter on seasonally elevated payroll expenses of $400-$500 million and higher FDIC insurance costs of $125 million.
Our estimate for non-interest expenses stands at $16.07 billion, implying an increase of 4.9% on a year-over-year basis.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, BAC is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $1.14 billion.
The Zacks Consensus Estimate for non-performing loans of $4.6 billion implies a slight decrease year over year. Our estimate for the metric is pegged at $4.63 billion, suggesting a marginal increase.
What the Zacks Model Shows
Our proven model does not predict an earnings beat for BofA this time around. This is because it doesn’t have the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for BofA is -3.36%.
Zacks Rank: BAC currently carries a Zacks Rank #4 (Sell).
Bank of America Corporation Price and EPS Surprise
Bank of America Corporation price-eps-surprise | Bank of America Corporation Quote
The Zacks Consensus Estimate for first-quarter earnings is pegged at 80 cents, which has moved 1.2% lower over the past seven days. Our estimate for earnings is 75 cents.
The consensus estimate for sales of $25.24 billion indicates 9.7% growth. Our estimate for sales is $24.62 billion, reflecting a rise of 6%.
Major Banks to Consider
Here are a couple of major bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Bank of New York Mellon Corporation (BK - Free Report) is scheduled to release first-quarter 2023 earnings on Apr 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.58%.
BK’s quarterly earnings estimates have remained unchanged over the past week.
Comerica (CMA - Free Report) is scheduled to release first-quarter 2023 earnings on Apr 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.16%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CMA’s quarterly earnings estimates have moved marginally lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.