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At the RBC Capital Markets Financial Institutions Conference, Bank of America’s (BAC - Free Report) chief financial officer (CFO) Alastair Borthwick signaled improvement in the investment banking (IB) business and provided markets revenues outlook for the first quarter of 2024.
He indicated that capital markets activity has been improving. He added, “I think you can see that just in the deal flow, you can see it in the league tables.” Thus, IB revenues are expected to rise in the range of 10-15% on a year-over-year basis in the first quarter.
With this, BofA joined other major banks in offering upbeat IB guidance. At the same conference, Citigroup’s (C - Free Report) CEO Jane Fraser told investors that IB fees at the company are projected to sequentially improve in the low-teens range. Last month, JPMorgan’s (JPM - Free Report) CFO Jeremy Barnum had signaled a similar trend. The company expects IB fees to grow in the low-to-mid-teens range from the last-year quarter level.
Further, Borthwick seemed optimistic about the performance of the Global Markets division as the company continues “to invest in the franchise.” In terms of performance, BofA’s markets revenues are anticipated to remain stable from the prior-year quarter, which saw record revenues. This is expected to be majorly driven by robust equity markets performance.
Unlike BofA, both JPM and C suggest a decline in markets revenues for the ongoing quarter. Markets revenues are expected to decrease 5-10% year over year for JPM and 8-12% for C.
At the conference, Borthwick also shed some light on net interest income (NII) guidance. For the current quarter, management now expects NII to be in the upper end of the $13.9-$14 billion range. For the second quarter, there might be a slight dip in the NII numbers before the metric reversing trend in the second half of 2024 on the back of rate cuts.
He said, “Now that the market's sort of pricing in three to four rate cuts rather than six or seven, we might see some benefit towards the back end as the cumulative effect of that takes place.”
Over the last two years, BofA recorded robust NII performance. In 2022, NII jumped 22%, while last year, the metric grew 9%. In the said period, the Federal Reserve raised the interest rates to a 22-year high of 5.25-5.5% to control “sticky” inflation. However, higher rates exerted pressure on the company’s NII as deposit costs rose exponentially.
Now, as the central bank has signaled rate cuts later this year, BofA, along with other banks, including Citigroup and JPMorgan, is expected to witness some reprieve from the current high interest rate regime.
Over the past year, shares of BofA have gained 8.8% compared with the industry’s 16.7% growth.
Image: Bigstock
BofA (BAC) Expects Higher IB Fees, Flat Markets Revenues in Q1
At the RBC Capital Markets Financial Institutions Conference, Bank of America’s (BAC - Free Report) chief financial officer (CFO) Alastair Borthwick signaled improvement in the investment banking (IB) business and provided markets revenues outlook for the first quarter of 2024.
He indicated that capital markets activity has been improving. He added, “I think you can see that just in the deal flow, you can see it in the league tables.” Thus, IB revenues are expected to rise in the range of 10-15% on a year-over-year basis in the first quarter.
With this, BofA joined other major banks in offering upbeat IB guidance. At the same conference, Citigroup’s (C - Free Report) CEO Jane Fraser told investors that IB fees at the company are projected to sequentially improve in the low-teens range. Last month, JPMorgan’s (JPM - Free Report) CFO Jeremy Barnum had signaled a similar trend. The company expects IB fees to grow in the low-to-mid-teens range from the last-year quarter level.
Further, Borthwick seemed optimistic about the performance of the Global Markets division as the company continues “to invest in the franchise.” In terms of performance, BofA’s markets revenues are anticipated to remain stable from the prior-year quarter, which saw record revenues. This is expected to be majorly driven by robust equity markets performance.
Unlike BofA, both JPM and C suggest a decline in markets revenues for the ongoing quarter. Markets revenues are expected to decrease 5-10% year over year for JPM and 8-12% for C.
At the conference, Borthwick also shed some light on net interest income (NII) guidance. For the current quarter, management now expects NII to be in the upper end of the $13.9-$14 billion range. For the second quarter, there might be a slight dip in the NII numbers before the metric reversing trend in the second half of 2024 on the back of rate cuts.
He said, “Now that the market's sort of pricing in three to four rate cuts rather than six or seven, we might see some benefit towards the back end as the cumulative effect of that takes place.”
Over the last two years, BofA recorded robust NII performance. In 2022, NII jumped 22%, while last year, the metric grew 9%. In the said period, the Federal Reserve raised the interest rates to a 22-year high of 5.25-5.5% to control “sticky” inflation. However, higher rates exerted pressure on the company’s NII as deposit costs rose exponentially.
Now, as the central bank has signaled rate cuts later this year, BofA, along with other banks, including Citigroup and JPMorgan, is expected to witness some reprieve from the current high interest rate regime.
Over the past year, shares of BofA have gained 8.8% compared with the industry’s 16.7% growth.
Image Source: Zacks Investment Research
Currently, BAC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.