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Lower rates are likely to have hurt Bank of America’s (BAC - Free Report) first-quarter 2020 earnings, slated to be announced on Apr 15, before market open. After slashing rates thrice last year with an aim of supporting the U.S. economy from trade-war related woes, the Federal Reserve had to make a similar move this year as well, owing to coronavirus and concerns surrounding its impact on the economy.
In an unexpected turn of events, the central bank cut the rates to near zero in March. Thus, this is likely to have hurt BofA’s net interest yield in the first quarter.
The lending backdrop was strong in the first two months of the to-be-reported quarter. However, the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a grinding halt. Overall lending scenario remained decent during the first quarter, with commercial and industrial, and real estate loan portfolios having offered considerable support. However, the near-zero interest rates might have hampered net interest income (NII) growth.
Management expects NII to decline sequentially owing to one less day of interest, full impact of October 2019-end interest rate cut and dilution in securities yields. Nevertheless, these are likely to have been partially offset by modest loan and deposit growth.
Here are few other key factors that are likely to impact BofA’s first-quarter results:
Decline in investment banking (IB) fees: Global M&A activity during the first quarter was significantly hampered amid the coronavirus outbreak. Thus, BofA’s advisory fees are likely to have been negatively impacted. However, increased focus on the M&A business must have provided some support to the bank, which is one of the leading players in this space.
During the quarter, overall weak equity market performance resulted in a decline in follow-up equity issuances, while IPOs were a bright spot. Bond issuance volumes were strong, while debt issuances were muted owing to soft loan demand. Therefore, growth in BofA’s equity underwriting fees and debt origination fees (accounting 40% of total IB fees) are expected to have been weak in the first quarter.
BofA’s IB revenues are accounted in the Global Banking segment. The Zacks Consensus Estimate for the segment’s net revenues of $4.95 billion suggests a 3.8% sequential decline.
Substantial rise in trading revenues: Coronavirus-related concerns resulted in an unexpected rise in market volatility during first-quarter 2020. With an increase in volatility and higher client activities, BofA’s trading businesses (both equity and fixed income) are likely to have received a substantial boost.
Thus, trading revenues are likely to have been robust in the to-be-reported quarter. The Zacks Consensus Estimate for equity trading revenues of $1.24 billion suggests a jump of 21.5% from the prior quarter. The consensus estimate for fixed income trading revenues indicates a surge of 35.4% to $2.38 billion.
Thus, overall the consensus estimate for trading revenues indicates a rise of 30.3% sequentially.
Expenses to be manageable: Though the bank continues to digitize operations, upgrade technology and expand into newer markets by opening branches, leading to higher related costs, its prior efforts to improve operating efficiency are likely to have resulted in manageable expense levels in the first quarter.
Notably, quarterly expenses will include nearly $400 million of seasonally elevated personnel costs related to payroll taxes.
Here is what our quantitative model predicts:
Our proven model shows that BofA doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.
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 -3.65%.
Zacks Rank: BofA currently carries a Zacks Rank #5 (Strong Sell).
Bank of America Corporation Price and EPS Surprise
The Zacks Consensus Estimate for the soon-to-be-reported quarter’s earnings has moved 2.9% downward over the past seven days. The consensus estimate of 66 cents suggests a 5.7% decline from the year-ago reported number. Also, the consensus estimate for sales of $22.5 billion indicates 2.1% fall from the year-ago quarter.
Banks That Warrant a Look
Here are a few 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 around:
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers soon.
SB One Bancorp is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Rate Cuts & Coronavirus Woes to Hurt BofA (BAC) Q1 Earnings
Lower rates are likely to have hurt Bank of America’s (BAC - Free Report) first-quarter 2020 earnings, slated to be announced on Apr 15, before market open. After slashing rates thrice last year with an aim of supporting the U.S. economy from trade-war related woes, the Federal Reserve had to make a similar move this year as well, owing to coronavirus and concerns surrounding its impact on the economy.
In an unexpected turn of events, the central bank cut the rates to near zero in March. Thus, this is likely to have hurt BofA’s net interest yield in the first quarter.
The lending backdrop was strong in the first two months of the to-be-reported quarter. However, the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a grinding halt. Overall lending scenario remained decent during the first quarter, with commercial and industrial, and real estate loan portfolios having offered considerable support. However, the near-zero interest rates might have hampered net interest income (NII) growth.
Management expects NII to decline sequentially owing to one less day of interest, full impact of October 2019-end interest rate cut and dilution in securities yields. Nevertheless, these are likely to have been partially offset by modest loan and deposit growth.
Here are few other key factors that are likely to impact BofA’s first-quarter results:
Decline in investment banking (IB) fees: Global M&A activity during the first quarter was significantly hampered amid the coronavirus outbreak. Thus, BofA’s advisory fees are likely to have been negatively impacted. However, increased focus on the M&A business must have provided some support to the bank, which is one of the leading players in this space.
During the quarter, overall weak equity market performance resulted in a decline in follow-up equity issuances, while IPOs were a bright spot. Bond issuance volumes were strong, while debt issuances were muted owing to soft loan demand. Therefore, growth in BofA’s equity underwriting fees and debt origination fees (accounting 40% of total IB fees) are expected to have been weak in the first quarter.
BofA’s IB revenues are accounted in the Global Banking segment. The Zacks Consensus Estimate for the segment’s net revenues of $4.95 billion suggests a 3.8% sequential decline.
Substantial rise in trading revenues: Coronavirus-related concerns resulted in an unexpected rise in market volatility during first-quarter 2020. With an increase in volatility and higher client activities, BofA’s trading businesses (both equity and fixed income) are likely to have received a substantial boost.
Thus, trading revenues are likely to have been robust in the to-be-reported quarter. The Zacks Consensus Estimate for equity trading revenues of $1.24 billion suggests a jump of 21.5% from the prior quarter. The consensus estimate for fixed income trading revenues indicates a surge of 35.4% to $2.38 billion.
Thus, overall the consensus estimate for trading revenues indicates a rise of 30.3% sequentially.
Expenses to be manageable: Though the bank continues to digitize operations, upgrade technology and expand into newer markets by opening branches, leading to higher related costs, its prior efforts to improve operating efficiency are likely to have resulted in manageable expense levels in the first quarter.
Notably, quarterly expenses will include nearly $400 million of seasonally elevated personnel costs related to payroll taxes.
Here is what our quantitative model predicts:
Our proven model shows that BofA doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.
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 -3.65%.
Zacks Rank: BofA currently carries a Zacks Rank #5 (Strong Sell).
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 the soon-to-be-reported quarter’s earnings has moved 2.9% downward over the past seven days. The consensus estimate of 66 cents suggests a 5.7% decline from the year-ago reported number. Also, the consensus estimate for sales of $22.5 billion indicates 2.1% fall from the year-ago quarter.
Banks That Warrant a Look
Here are a few 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 around:
BCB Bancorp, Inc. (NJ) (BCBP - Free Report) is expected to release quarterly results soon. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers soon.
SB One Bancorp is likely to report quarterly earnings soon. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>