Will Mute Investment Banking Hurt BofA (BAC) Q1 Earnings?
Performance of investment banking, one of the
primary sources of revenues for Bank of America
BAC, 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%.
Bank of America Corporation Price and EPS Surprise
Bank of America Corporation Price and EPS Surprise | Bank of America Corporation Quote
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 is slated to announce results on Apr 17, while
KeyCorp KEY and BB&T Corp. BBT will come out with quarterly
numbers on Apr 18.
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