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Will Mute Investment Banking Hurt BofA (BAC) Q1 Earnings?

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Performance of investment banking, one of the primary sources of revenues for Bank of America (BAC - Free Report) , is expected to be muted in first-quarter 2019. So, this will likely have an adverse impact on the bank’s results, slated on Apr 16.

Investment banking income basically comprises underwriting revenues (equity and debt) and advisory fees (generated from M&A deals and IPOs). So, let’s check how these are likely to have performed in the to-be-reported quarter.

Prolonged government shutdown at the beginning of the quarter and fears of economic slowdown weighed on companies’ plans to raise capital by issuing shares. Thus, BofA’s equity underwriting fees are expected to be weak.

Further, higher interest rates are likely to have slowed down companies’ involvement in debt issuance activities. Nonetheless, the Fed’s dovish stance on future rate hikes must have led to a slight increase in debt issuances during the quarter. Thus, debt underwriting fees (accounting for roughly 40% of total investment banking fees for BofA) might provide some support to the bank’s revenues.

Now coming to advisory fees, it is also not expected to be a great support to BofA’s top line. While dealmakers across the globe were active during the first quarter, global deal value and volume witnessed a fall due to higher borrowing costs and several geopolitical concerns.

Further, given the government shutdown and geopolitical ambiguity, IPO activities slowed down despite decent equity market performance during the quarter. So, these factors will have a slight adverse impact on BofA’s advisory fees. However, with the company being one of the leading players in this space, this will likely provide it some leverage.

Overall Earnings & Revenue Projections

Notably for BofA, the Zacks Consensus Estimate for earnings of 65 cents reflects a 4.8% increase on a year-over-year basis. Also, the consensus estimate for sales of $23.2 billion indicates a marginal rise of 0.5%.

Click here to know about the other factors that are likely to influence BofA’s overall results.

Our Take

Amid a tough operating environment, soft investment banking performance is expected to have a marginal adverse impact BofA’s revenues. Along with this, dismal trading performance remains a concern. Nonetheless, decent loan growth and higher interest rates will aid this Zacks Rank #3 (Hold) stock’s revenues.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates of Other Major Banks

U.S. Bancorp (USB - Free Report) is slated to announce results on Apr 17, while KeyCorp (KEY - Free Report) and BB&T Corp. (BBT - Free Report) will come out with quarterly numbers on Apr 18.

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