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Rates, Loans to Aid BofA (BAC) Q2 Earnings, IB & Trading to Hurt
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Bank of America (BAC - Free Report) is slated to report second-quarter 2023 earnings on Jul 18, before the market opens. The high interest rates are 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 modest loan demand, BAC is expected to have witnessed an expansion of its net interest margin (NIM) on a year-over-year basis during the second quarter. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans was soft in April and May, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
Continuing with its efforts to curb persistent inflation, the Fed raised the interest rates by another 25 basis points in May before pausing the hike in the June FOMC meeting. The policy rate is now at a 15-year high of 5-5.25%. While this is likely to have had a favorable impact on Bank of America’s NIM and NII, the inversion of the yield curve in the June-ended quarter and higher deposit costs are expected to have weighed on it to some extent.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.68 trillion, suggesting an almost 1% decline from the year-ago reported number. Our estimate for the metric is $2.55 trillion, indicating a 5.7% fall.
Management expects NII (FTE) to be approximately $14.3 billion. The Zacks Consensus Estimate for NII (FTE basis) of $14.29 billion suggests a 14% increase. Our estimate for NII (FTE) implies a rise of 14.4% to $14.35 billion.
Other Key Factors at Play
Trading Income: Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, the central bank’s hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, BAC is likely to have recorded a weak performance in trading revenues this time.
Further, tougher comps from the prior year are expected to have weighed on Bank of America’s performance. The Zacks Consensus Estimate for total sales and trading revenues of $4.14 billion suggests a slight decline from the prior-year quarter’s reported number. Our estimate for the metric is the same as the consensus number.
Investment Banking (IB) Fees: Global deal-making continued to shrink on a year-over-year basis in the second quarter, while green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.
Thus, the deal volume and total value numbers crashed in the second quarter. 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 $1.14 billion indicates a rise of 1.5% from the prior-year quarter level.
Expenses: While BAC was able to manage expenses prudently in the past, expansion into newer markets by opening financial centers, as well as efforts to digitize operations and upgrade existing financial centers, are expected to keep non-interest expenses elevated in the to-be-reported quarter.
Nonetheless, management plans to cut around 5,000 jobs in the second quarter. Thus, the second quarter's non-interest expenses are expected to be around $15.8 billion, down sequentially.
Our estimate for non-interest expenses stands at $15.79 billion, implying an increase of 3.4% on a year-over-year basis.
Asset Quality: BAC is expected to have set aside substantial money for potential bad loans, given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions. Our estimate for provision for credit losses is pegged at $1.11 billion.
The Zacks Consensus Estimate for non-performing assets of $4.38 billion implies a 1.1% increase year over year. Our estimate for the metric is pegged at $4.4 billion, suggesting a 1.6% rise.
What the Zacks Model Shows
Our proven model does not predict an earnings beat for BofA this time. 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 -6.14%.
Zacks Rank: BAC currently carries a Zacks Rank #3.
Bank of America Corporation Price and EPS Surprise
The Zacks Consensus Estimate for second-quarter earnings is pegged at 85 cents, which has moved 1.2% lower over the past 30 days. The number indicates a rise of 16.4% from the year-ago reported number. Our estimate for earnings is 83 cents.
The consensus estimate for sales of $25.11 billion indicates 10.7% growth. Our estimate for sales is $24.77 billion, reflecting a rise of 9.2%.
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:
The Earnings ESP for Wells Fargo (WFC - Free Report) is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14.
Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has moved 1.7% lower.
Image: Bigstock
Rates, Loans to Aid BofA (BAC) Q2 Earnings, IB & Trading to Hurt
Bank of America (BAC - Free Report) is slated to report second-quarter 2023 earnings on Jul 18, before the market opens. The high interest rates are 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 modest loan demand, BAC is expected to have witnessed an expansion of its net interest margin (NIM) on a year-over-year basis during the second quarter. Per the Federal Reserve’s latest data, the demand for commercial and industrial loans was soft in April and May, while real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
Continuing with its efforts to curb persistent inflation, the Fed raised the interest rates by another 25 basis points in May before pausing the hike in the June FOMC meeting. The policy rate is now at a 15-year high of 5-5.25%. While this is likely to have had a favorable impact on Bank of America’s NIM and NII, the inversion of the yield curve in the June-ended quarter and higher deposit costs are expected to have weighed on it to some extent.
The Zacks Consensus Estimate for BAC’s average interest earnings assets is pegged at $2.68 trillion, suggesting an almost 1% decline from the year-ago reported number. Our estimate for the metric is $2.55 trillion, indicating a 5.7% fall.
Management expects NII (FTE) to be approximately $14.3 billion. The Zacks Consensus Estimate for NII (FTE basis) of $14.29 billion suggests a 14% increase. Our estimate for NII (FTE) implies a rise of 14.4% to $14.35 billion.
Other Key Factors at Play
Trading Income: Market volatility and client activity were subdued in the second quarter due to the Congressional debate over the debt ceiling. Also, the risks of an economic downturn/recession, the central bank’s hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
Thus, these factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, BAC is likely to have recorded a weak performance in trading revenues this time.
Further, tougher comps from the prior year are expected to have weighed on Bank of America’s performance. The Zacks Consensus Estimate for total sales and trading revenues of $4.14 billion suggests a slight decline from the prior-year quarter’s reported number. Our estimate for the metric is the same as the consensus number.
Investment Banking (IB) Fees: Global deal-making continued to shrink on a year-over-year basis in the second quarter, while green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.
Thus, the deal volume and total value numbers crashed in the second quarter. 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 $1.14 billion indicates a rise of 1.5% from the prior-year quarter level.
Expenses: While BAC was able to manage expenses prudently in the past, expansion into newer markets by opening financial centers, as well as efforts to digitize operations and upgrade existing financial centers, are expected to keep non-interest expenses elevated in the to-be-reported quarter.
Nonetheless, management plans to cut around 5,000 jobs in the second quarter. Thus, the second quarter's non-interest expenses are expected to be around $15.8 billion, down sequentially.
Our estimate for non-interest expenses stands at $15.79 billion, implying an increase of 3.4% on a year-over-year basis.
Asset Quality: BAC is expected to have set aside substantial money for potential bad loans, given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions. Our estimate for provision for credit losses is pegged at $1.11 billion.
The Zacks Consensus Estimate for non-performing assets of $4.38 billion implies a 1.1% increase year over year. Our estimate for the metric is pegged at $4.4 billion, suggesting a 1.6% rise.
What the Zacks Model Shows
Our proven model does not predict an earnings beat for BofA this time. 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 -6.14%.
Zacks Rank: BAC currently carries a Zacks Rank #3.
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 second-quarter earnings is pegged at 85 cents, which has moved 1.2% lower over the past 30 days. The number indicates a rise of 16.4% from the year-ago reported number. Our estimate for earnings is 83 cents.
The consensus estimate for sales of $25.11 billion indicates 10.7% growth. Our estimate for sales is $24.77 billion, reflecting a rise of 9.2%.
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:
The Earnings ESP for Wells Fargo (WFC - Free Report) is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14.
Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has moved 1.7% lower.
PNC Financial (PNC - Free Report) is scheduled to release second-quarter 2023 earnings on Jul 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.41%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC’s quarterly earnings estimates have moved 1.2% lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.