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Muted Investment Banking to Hurt BofA's (BAC) Q3 Earnings
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Bank of America’s (BAC - Free Report) investment banking (IB) business, one of its major revenue sources, is not expected to have performed significantly well in the third quarter of 2023. Thus, the company’s IB revenues are not likely to have provided much support to its quarterly performance. BAC’s third-quarter results are scheduled to be announced on Oct 17, before market open.
IB revenues mainly comprise advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s see how these are likely to have fared in the to-be-reported quarter.
Global deal-making witnessed a slight rebound in the third quarter, but M&A activities remained soft on a year-over-year basis. Headwinds like geopolitical tensions, government shutdown, ‘sticky’ inflation, high interest rates and fears of a global economic slowdown continued to weigh on deal-making.
Thus, the deal volume and total deal value numbers crashed in the third quarter. Because of this, BAC’s advisory fee is likely to have been negatively impacted.
Then, the IPO market witnessed considerable activity, with 26 IPOs jointly raising $7.7 billion in the third quarter. The quarter’s amount matches the total proceeds raised in 2022. However, the performance was still subdued and nowhere near normal.
Follow-up equity issuances were soft in the quarter, while bond issuance volumes improved from the prior-year quarter. Hence, BAC’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been slightly hurt in the to-be-reported quarter.
At the Barclays Global Financial Services Conference in early September, BAC's chief financial officer, Alastair Borthwick, said that IB fees for the sector were down 30-35% in the third quarter from the year-earlier quarter. However, Bank of America's IB performance is expected to be better than the average.
Borthwick stated, “We'll do slightly better than that, but that still puts the investment banking fees, which are probably right around $1 billion mark.”
The Zacks Consensus Estimate for third-quarter IB fees is pegged at $1.09 billion, which indicates a fall of 6.8% from the prior-year quarter level. We expect IB income to be $1.14 billion, indicating a decline of 2.7%.
Q3 Earnings & Revenue Expectations
The Zacks Consensus Estimate for BAC’s third-quarter earnings is pegged at 80 cents per share, which has been revised 1.2% lower over the past seven days. The estimate reflects a decline of 1.2% from the year-ago reported number. Our estimate for the same is 78 cents.
The consensus estimate for sales of $25.08 billion indicates a year-over-year rise of 2.4%. Our estimate for sales is $24.57 billion.
Bank of America Corporation Price and EPS Surprise
Click here to learn about other factors that are likely to have influenced BAC’s overall performance in the quarter to be reported.
Our Take
BAC is expected to have benefited from higher interest rates in the third quarter. However, the weak trading performance and the not-so-impressive performance of the company’s IB business are likely to have hurt the Zacks Rank #3 (Hold) stock’s top-line growth.
IB revenues constitute a major part of total revenues of banks like Morgan Stanley (MS - Free Report) and Goldman Sachs (GS - Free Report) . MS and GS are also not expected to have witnessed growth in IB revenues in the third quarter majorly because of muted deal-making activities.
The Zacks Consensus Estimate for Morgan Stanley’s third-quarter IB income of $1.24 billion indicates a year-over-year decline of 2.8%. Our estimate for IB income is pegged at $1.22 billion.
The Zacks Consensus Estimate for GS’s third-quarter IB fees of $1.52 billion indicates a year-over-year decline of 1.7%.
MS will report quarterly results on Oct 18 and GS is slated to report third-quarter numbers on Oct 17.
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Muted Investment Banking to Hurt BofA's (BAC) Q3 Earnings
Bank of America’s (BAC - Free Report) investment banking (IB) business, one of its major revenue sources, is not expected to have performed significantly well in the third quarter of 2023. Thus, the company’s IB revenues are not likely to have provided much support to its quarterly performance. BAC’s third-quarter results are scheduled to be announced on Oct 17, before market open.
IB revenues mainly comprise advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s see how these are likely to have fared in the to-be-reported quarter.
Global deal-making witnessed a slight rebound in the third quarter, but M&A activities remained soft on a year-over-year basis. Headwinds like geopolitical tensions, government shutdown, ‘sticky’ inflation, high interest rates and fears of a global economic slowdown continued to weigh on deal-making.
Thus, the deal volume and total deal value numbers crashed in the third quarter. Because of this, BAC’s advisory fee is likely to have been negatively impacted.
Then, the IPO market witnessed considerable activity, with 26 IPOs jointly raising $7.7 billion in the third quarter. The quarter’s amount matches the total proceeds raised in 2022. However, the performance was still subdued and nowhere near normal.
Follow-up equity issuances were soft in the quarter, while bond issuance volumes improved from the prior-year quarter. Hence, BAC’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been slightly hurt in the to-be-reported quarter.
At the Barclays Global Financial Services Conference in early September, BAC's chief financial officer, Alastair Borthwick, said that IB fees for the sector were down 30-35% in the third quarter from the year-earlier quarter. However, Bank of America's IB performance is expected to be better than the average.
Borthwick stated, “We'll do slightly better than that, but that still puts the investment banking fees, which are probably right around $1 billion mark.”
The Zacks Consensus Estimate for third-quarter IB fees is pegged at $1.09 billion, which indicates a fall of 6.8% from the prior-year quarter level. We expect IB income to be $1.14 billion, indicating a decline of 2.7%.
Q3 Earnings & Revenue Expectations
The Zacks Consensus Estimate for BAC’s third-quarter earnings is pegged at 80 cents per share, which has been revised 1.2% lower over the past seven days. The estimate reflects a decline of 1.2% from the year-ago reported number. Our estimate for the same is 78 cents.
The consensus estimate for sales of $25.08 billion indicates a year-over-year rise of 2.4%. Our estimate for sales is $24.57 billion.
Bank of America Corporation Price and EPS Surprise
Bank of America Corporation price-eps-surprise | Bank of America Corporation Quote
Click here to learn about other factors that are likely to have influenced BAC’s overall performance in the quarter to be reported.
Our Take
BAC is expected to have benefited from higher interest rates in the third quarter. However, the weak trading performance and the not-so-impressive performance of the company’s IB business are likely to have hurt the Zacks Rank #3 (Hold) stock’s top-line growth.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
IB revenues constitute a major part of total revenues of banks like Morgan Stanley (MS - Free Report) and Goldman Sachs (GS - Free Report) . MS and GS are also not expected to have witnessed growth in IB revenues in the third quarter majorly because of muted deal-making activities.
The Zacks Consensus Estimate for Morgan Stanley’s third-quarter IB income of $1.24 billion indicates a year-over-year decline of 2.8%. Our estimate for IB income is pegged at $1.22 billion.
The Zacks Consensus Estimate for GS’s third-quarter IB fees of $1.52 billion indicates a year-over-year decline of 1.7%.
MS will report quarterly results on Oct 18 and GS is slated to report third-quarter numbers on Oct 17.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.