We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
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.
No Interest Rate Cuts for Now: Time to Reassess Your BAC Investment?
Read MoreHide Full Article
Key Takeaways
BAC expects net interest income to rise every quarter in 2025, reaching up to $15.7B in Q4.
Higher loan demand, solid deposits and cautious Fed policy support BAC's NII growth outlook.
Investment banking fees may fall over 20% in Q2 amid tariff-driven deal-making slowdown.
Bank of America (BAC - Free Report) is one of the most interest rate-sensitive among big banks. So, when the Federal Reserve lowered the interest rates by 100 basis points last year, the company’s net interest income (NII) benefited from it. Fixed-rate asset repricing, higher loan balance and a gradual decline in deposit costs drove the sequential increase in NII since the second quarter of 2024, which was partly offset by lower interest rates.
The central bank is now pursuing a cautious approach toward interest rate cuts because of macroeconomic uncertainty due to Trump’s tariff plans. As such, interest rates are expected to remain higher for a longer duration. Bank of America is seeing an upside in NII in 2025, driven by decent loan demand, higher-for-longer interest rates, robust deposit balance and solid economic growth.
The company expects a sequential rise in NII for all the quarters this year, with growth likely to accelerate in the second half of the year and the fourth-quarter number likely to touch the $15.5-$15.7 billion level. Hence, for 2025, NII is expected to rise 6-7%.
Bank of America’s Quarterly NII Trend
Image Source: Bank of America Corp.
Bank of America: Other Major Factors at Play
Branch Expansion & Digital Initiatives: Bank of America’s aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. By 2027, it plans to expand its financial center network and open more than 150 centers. Of these, 40 are expected to be opened this year, and 70 more in 2026. The company also remains committed to providing modern and state-of-the-art financial centers through its ongoing renovation and modernization project.
Likewise, JPMorgan (JPM - Free Report) is doubling down on physical expansion to strengthen its competitive edge in relationship banking. In 2024, the company opened more than 150 new branches and remains on track to add 500 more by 2027.
Over the past few years, BAC has been renovating and updating its existing financial centers across the country for clients to engage with financial specialists and ensure a consistent and modern experience across all centers. The bank's strategic investment in new financial centers and expansion into new markets reflects a broader industry shift toward optimizing branch networks to deepen customer relationships and tap into new business opportunities. In this competitive environment, the ability to blend digital convenience with in-person expertise is expected to give Bank of America long-term leverage in the evolving banking landscape.
The company plans to continue strengthening its technology initiatives and spend heavily on these. These efforts help it attract and retain customers and boost cross-selling opportunities.
Fortress Balance Sheet & Solid Liquidity: Bank of America’s liquidity profile remains solid. As of March 31, 2025, average global liquidity sources were $942 billion. Also, the company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook facilitate easy access to the debt market.
BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it hiked dividends four times, with an annualized growth rate of 8.84%. Currently, the company's payout ratio is 31% of earnings.
In July 2024, the company authorized a $25 billion stock repurchase program, effective Aug. 1, 2024. As of March 31, 2025, almost $14.4 billion worth of buyback authorization remained available. The company intends to buy back shares worth nearly $4.5 billion every quarter in the near term.
Weak Investment Banking (IB) Business: As global deal-making came to a grinding halt at the beginning of 2022, it weighed substantially on Bank of America’s IB business. Though the company’s total IB fees plunged 45.7% in 2022 and 2.4% in 2023, the trend reversed in 2024. Thus, the company’s IB fees soared 31.4% year over year.
The anticipated resurgence in mergers and acquisitions (M&As) following President Donald Trump’s re-election and expectations of favorable regulatory changes failed to materialize. Yet, the first-quarter 2025 performance was better than expected (IB fees in the Global Banking division of $847 million were relatively stable as the plunge in equity underwriting income was almost offset by the improvement in advisory revenues and higher debt underwriting income).
However, deal-making activities have paused as ambiguity over the tariff and ensuing trade war has resulted in extreme market volatility and economic uncertainty. Amid such a backdrop, companies are rethinking their M&A plans despite stabilizing rates and having significant investible capital. Hence, in the near term, this will significantly hurt the IB businesses of Bank of America, JPMorgan and Citigroup (C - Free Report) , which generate billions in revenues from M&A advisory fees.
BAC expects IB fees to decline more than 20% year over year in the second quarter as tariff-related headwinds continue to hamper deal-making sentiments. Similarly, JPMorgan’s IB fees are expected to be down in the mid-teens range. On the other hand, Citigroup projects second-quarter IB fees to increase by a mid-single-digit percentage on a year-over-year basis as deal-making activities rebounded and stock markets recovered from the ambiguity over the final tariff decision.
Once the operating backdrop gradually turns favorable for deal-making activities, global M&As are expected to witness a solid rise. Eventually, Bank of America will report growth in IB fees, driven by a healthy IB pipeline and an active M&A market.
Deteriorating Asset Quality: Bank of America’s asset quality has been weakening. While the company recorded negative provisions in 2021, a substantial jump in provisions was recorded in the years that followed because of the worsening macroeconomic outlook. The metric surged 115.4% in 2022, 72.8% in 2023 and 32.5% in 2024. Similarly, net charge-offs grew 74.9% in 2023 and 58.8% in 2024. The uptrend for both continued in the first quarter of 2025.
As interest rates are less likely to come down substantially in the near term, it is expected to hurt the borrowers’ credit profile. The company remains vigilant about the effects of continuous high rates and quantitative tightening on its loan portfolio. Also, the impact of tariffs on inflation is likely to be seen. Hence, the company’s asset quality is expected to remain subdued.
Bullish Analyst Sentiments for BAC
Over the past month, the Zacks Consensus Estimate for earnings for 2025 has moved marginally higher to $3.68. Meanwhile, the consensus estimate for 2026 earnings remained unchanged at $4.25. The consensus estimate for earnings indicates 12.2% and 15.6% growth for 2025 and 2026, respectively.
Bank of America Earnings Estimates
Image Source: Zacks Investment Research
Unlocking Bank of America’s Valuation
Bank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.66X, which is below the industry’s 2.83X. This shows the stock is inexpensive.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
BAC stock is inexpensive compared with JPMorgan, which has a P/TB of 2.80X. On the other hand, it is trading at a premium compared with Citigroup’s P/TB of 0.86X.
How to Approach Bank of America Stock Now?
Shares of Bank of America gained 6.4% in the past three months, outperforming the S&P 500 Index. Meanwhile, its close peers – JPMorgan and Citigroup – rallied 13.3% and 9.2%, respectively.
BAC Three-Month Price Performance
Image Source: Zacks Investment Research
Bank of America's global presence, diversified revenue streams, ongoing branch openings and relatively high interest rates and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Further, bullish analyst sentiments and attractive valuation make the stock a compelling option for investors.
However, BAC faces near-term challenges, including macroeconomic ambiguity because of the imposition of tariffs and its impact on interest rates. Also, weak IB business performance and deteriorating asset quality are near-term concerns. So, investors must wait for clarity on macroeconomic issues before buying the stock.
Image: Bigstock
No Interest Rate Cuts for Now: Time to Reassess Your BAC Investment?
Key Takeaways
Bank of America (BAC - Free Report) is one of the most interest rate-sensitive among big banks. So, when the Federal Reserve lowered the interest rates by 100 basis points last year, the company’s net interest income (NII) benefited from it. Fixed-rate asset repricing, higher loan balance and a gradual decline in deposit costs drove the sequential increase in NII since the second quarter of 2024, which was partly offset by lower interest rates.
The central bank is now pursuing a cautious approach toward interest rate cuts because of macroeconomic uncertainty due to Trump’s tariff plans. As such, interest rates are expected to remain higher for a longer duration. Bank of America is seeing an upside in NII in 2025, driven by decent loan demand, higher-for-longer interest rates, robust deposit balance and solid economic growth.
The company expects a sequential rise in NII for all the quarters this year, with growth likely to accelerate in the second half of the year and the fourth-quarter number likely to touch the $15.5-$15.7 billion level. Hence, for 2025, NII is expected to rise 6-7%.
Bank of America’s Quarterly NII Trend
Image Source: Bank of America Corp.
Bank of America: Other Major Factors at Play
Branch Expansion & Digital Initiatives: Bank of America’s aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. By 2027, it plans to expand its financial center network and open more than 150 centers. Of these, 40 are expected to be opened this year, and 70 more in 2026. The company also remains committed to providing modern and state-of-the-art financial centers through its ongoing renovation and modernization project.
Likewise, JPMorgan (JPM - Free Report) is doubling down on physical expansion to strengthen its competitive edge in relationship banking. In 2024, the company opened more than 150 new branches and remains on track to add 500 more by 2027.
Over the past few years, BAC has been renovating and updating its existing financial centers across the country for clients to engage with financial specialists and ensure a consistent and modern experience across all centers. The bank's strategic investment in new financial centers and expansion into new markets reflects a broader industry shift toward optimizing branch networks to deepen customer relationships and tap into new business opportunities. In this competitive environment, the ability to blend digital convenience with in-person expertise is expected to give Bank of America long-term leverage in the evolving banking landscape.
The company plans to continue strengthening its technology initiatives and spend heavily on these. These efforts help it attract and retain customers and boost cross-selling opportunities.
Fortress Balance Sheet & Solid Liquidity: Bank of America’s liquidity profile remains solid. As of March 31, 2025, average global liquidity sources were $942 billion. Also, the company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook facilitate easy access to the debt market.
BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it hiked dividends four times, with an annualized growth rate of 8.84%. Currently, the company's payout ratio is 31% of earnings.
In July 2024, the company authorized a $25 billion stock repurchase program, effective Aug. 1, 2024. As of March 31, 2025, almost $14.4 billion worth of buyback authorization remained available. The company intends to buy back shares worth nearly $4.5 billion every quarter in the near term.
Weak Investment Banking (IB) Business: As global deal-making came to a grinding halt at the beginning of 2022, it weighed substantially on Bank of America’s IB business. Though the company’s total IB fees plunged 45.7% in 2022 and 2.4% in 2023, the trend reversed in 2024. Thus, the company’s IB fees soared 31.4% year over year.
The anticipated resurgence in mergers and acquisitions (M&As) following President Donald Trump’s re-election and expectations of favorable regulatory changes failed to materialize. Yet, the first-quarter 2025 performance was better than expected (IB fees in the Global Banking division of $847 million were relatively stable as the plunge in equity underwriting income was almost offset by the improvement in advisory revenues and higher debt underwriting income).
However, deal-making activities have paused as ambiguity over the tariff and ensuing trade war has resulted in extreme market volatility and economic uncertainty. Amid such a backdrop, companies are rethinking their M&A plans despite stabilizing rates and having significant investible capital. Hence, in the near term, this will significantly hurt the IB businesses of Bank of America, JPMorgan and Citigroup (C - Free Report) , which generate billions in revenues from M&A advisory fees.
BAC expects IB fees to decline more than 20% year over year in the second quarter as tariff-related headwinds continue to hamper deal-making sentiments. Similarly, JPMorgan’s IB fees are expected to be down in the mid-teens range. On the other hand, Citigroup projects second-quarter IB fees to increase by a mid-single-digit percentage on a year-over-year basis as deal-making activities rebounded and stock markets recovered from the ambiguity over the final tariff decision.
Once the operating backdrop gradually turns favorable for deal-making activities, global M&As are expected to witness a solid rise. Eventually, Bank of America will report growth in IB fees, driven by a healthy IB pipeline and an active M&A market.
Deteriorating Asset Quality: Bank of America’s asset quality has been weakening. While the company recorded negative provisions in 2021, a substantial jump in provisions was recorded in the years that followed because of the worsening macroeconomic outlook. The metric surged 115.4% in 2022, 72.8% in 2023 and 32.5% in 2024. Similarly, net charge-offs grew 74.9% in 2023 and 58.8% in 2024. The uptrend for both continued in the first quarter of 2025.
As interest rates are less likely to come down substantially in the near term, it is expected to hurt the borrowers’ credit profile. The company remains vigilant about the effects of continuous high rates and quantitative tightening on its loan portfolio. Also, the impact of tariffs on inflation is likely to be seen. Hence, the company’s asset quality is expected to remain subdued.
Bullish Analyst Sentiments for BAC
Over the past month, the Zacks Consensus Estimate for earnings for 2025 has moved marginally higher to $3.68. Meanwhile, the consensus estimate for 2026 earnings remained unchanged at $4.25. The consensus estimate for earnings indicates 12.2% and 15.6% growth for 2025 and 2026, respectively.
Bank of America Earnings Estimates
Image Source: Zacks Investment Research
Unlocking Bank of America’s Valuation
Bank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.66X, which is below the industry’s 2.83X. This shows the stock is inexpensive.
Price-to-Tangible Book Ratio (TTM)
Image Source: Zacks Investment Research
BAC stock is inexpensive compared with JPMorgan, which has a P/TB of 2.80X. On the other hand, it is trading at a premium compared with Citigroup’s P/TB of 0.86X.
How to Approach Bank of America Stock Now?
Shares of Bank of America gained 6.4% in the past three months, outperforming the S&P 500 Index. Meanwhile, its close peers – JPMorgan and Citigroup – rallied 13.3% and 9.2%, respectively.
BAC Three-Month Price Performance
Image Source: Zacks Investment Research
Bank of America's global presence, diversified revenue streams, ongoing branch openings and relatively high interest rates and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Further, bullish analyst sentiments and attractive valuation make the stock a compelling option for investors.
However, BAC faces near-term challenges, including macroeconomic ambiguity because of the imposition of tariffs and its impact on interest rates. Also, weak IB business performance and deteriorating asset quality are near-term concerns. So, investors must wait for clarity on macroeconomic issues before buying the stock.
Those who own Bank of America stock can retain it for long-term gains. At present, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.