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IB, Loans, Equity Trading to Support BofA’s (BAC) Q4 Earnings

IB, Loans, Equity Trading to Support BofA's (BAC) Q4 Earnings
Written by Publishing Team

After witnessing strong customer activity and market volatility over the past few quarters, market normalization and low level volatility (compared to the prior year period) is expected to subside in the fourth quarter of 2021. American bankBAC’s business to some extent. Thus, trading returns are not expected to provide much support for the company’s upcoming earnings release, due to be announced on January 19, before the market opens.

Like past quarters, the major indexes – the S&P 500, Dow Jones and Nasdaq – saw gains during the fourth quarter, with all three touching new highs. Concerns about an acceleration of coronavirus infections worldwide, a steady rise in inflation, waning fiscal stimulus and the Federal Reserve’s hawkish monetary stance also weighed on investor sentiment.

These factors led to the high level of stock market volatility during the fourth quarter. On the other hand, bond trading remained decent in the first quarter of October-December.

Zacks Consensus’ estimate of $1.41 billion in stock-trading revenue is a 6.9% increase from the previous year’s quarter. Consensus estimates of fixed income trading revenue of $1.73 billion are for a 2.4% increase. The consensus estimates total trading revenue at $3.14 billion, which means a growth of 4.4%.

Other key factors at play

Investment Banking (IB) Fee: Like the past several quarters, deal closings continued at a strong pace in the last quarter of 2021, with both deal volume and value seeing significant growth. This was primarily driven by the resumption of normal trading activities, increased levels of liquidity, companies’ desire to boost volume and market share and a strong economic recovery. Hence, it is possible that the advisory fee for BOV A has been favorably affected.

Continuing momentum in the IPO market and a steady rise in follow-up equity issuances may have supported the IPO fees in the quarter to be announced. Bond issuance volumes were modest. Thus, growth in equity underwriting and debt origination fees (which is about 40% of total IB fees) is expected to be good.

Zacks Consensus’ estimate for IB fees of $2.04 billion indicates a 9.4% increase over the previous year’s level.

Net Interest Income (NII): Lending activities continued to improve in the fourth quarter. According to the Federal Reserve’s latest data, demand for business, industrial, mortgage and consumer loans accelerated in October and November. However, high levels of payments and bonuses and intense competition over loan pricing likely hurt Bank of America loan volumes. This, along with a persistently low interest rate environment, is expected to have some negative impact on the NII and net interest income this quarter.

The Zacks consensus estimate for NII based on FTE of $11.4 billion indicates a growth of 9.6% over the number reported in the previous year.

Management continues to forecast that the quarterly NII will be valued at approximately $11.3 billion. This is based on forward interest rate curve assumptions, economic recovery, more excess liquidity investment in securities, slightly lower premium amortization expenditures and modest loan growth, offset in part by lower interest income from PPP loans.

expenses: Although the bank continues to digitize operations, modernize technology and expand into new markets by opening branches that drive up related costs, it is likely that its previous efforts to improve operational efficiency have resulted in manageable expense levels in the quarter to be announced.

Management expects operating expenses for the fourth quarter to be flat or decrease slightly on a sequential basis and to be approximately $14 billion. In 2021, it is expected to reach approximately $56.5 billion.

Asset Quality: Continuing the trend of the past few quarters and driven by an improving macroeconomic background and stable credit market conditions, Bank of America is likely to have released the reserves it has taken to cover losses from the effects of the coronavirus pandemic.

As the economic outlook continues to improve and uncertainties remain, management expects reserve levels to continue to decline. With regard to card losses, as the late-stage delinquency level in the pipeline continues to decline for 180 days, card losses are expected to decline in the fourth quarter of 2021.

The Zacks consensus estimate of $4.73 billion in non-performing loans indicates a decline of 4.5%.

What the Zacks model reveals

Our proven model does not predict BofA earnings this time around. This is because it doesn’t have the right mix of two key ingredients – a positive ESP for earnings and Zacks rank #3 (Hold) or better – to increase the odds of winning earnings.

You can reveal the best stocks to buy or sell before they are reported with the ESP earnings filter.

ESP earnings: ESP for Bank of America earnings is -0.66%.

Zacks Rank: It currently holds a Zacks rating of #3.

Bank of America and EPS Surprise سعر

Bank of America and EPS Surprise سعر

Bank of America and EPS Surprise سعر

Bank of America share price surprise | Bank of America Corporation, Quote

Zacks’ fourth-quarter earnings consensus estimate was pegged at 76 cents, which has seen a downward revision of 1.3% over the past seven days. However, the estimated figure indicates a growth of 28.8% over the figure recorded last year.

Also, consensus estimates of $22.08 billion in revenue are for a 9.9% rise.

Banks that require a look

Here are a few bank stocks you might want to consider, as our model shows that these have the right set of items to spread out this time around:

The PNC Financial Services Group, Inc. PNC is scheduled to report fourth-quarter and full-year earnings for 2021 on January 18.

PNC Financial’s quarterly earnings estimates have fallen slightly over the past month.

Trade Bancshares CBSH is due to report its fourth-quarter and full-year 2021 results on January 19. CBSH currently holds a Zacks #3 rating and has an ESP + 1.24% dividend. you can see The full list of Zacks #1 stocks (strong buy) today is here.

CBSH’s earnings estimates for the quarter to be announced moved 3.3% north in the 30 days.

United Bank BKU is scheduled to release its earnings on January 21. BKU, which has a Zacks rating of #2 (buy) at the moment, has an ESP earnings of +42.98%.

The Zacks consensus estimate for BankUnited’s fourth-quarter earnings was unchanged over the past month.

Stay up-to-date with upcoming earnings announcements with the Zacks Earnings Calendar.

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Bank of America Corporation (BAC): Free Stock Analysis Report

The PNC Financial Services Group, Inc (PNC): Free Stock Analysis Report

Commerce Bancshares, Inc. (CBSH): Free Stock Analysis Report

BankUnited, Inc. (BKU): Free Stock Analysis Report

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