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Bank of America reported better than expected first quarter earnings before the bell Thursday on surginginvestment banking and trading results coupled with the release of loan-loss reserves.  $BAC followed CitigroupJPMorgan Chase, Wells FargoGoldman Sachs reporting

Bank of America Mortgage

Bank of America Corporation NYSE: BAC Reported Earnings Before Open Thursday

$0.86 Beat $0.63 EPS Forecast and $22.9 Beat $21.74 Billion Forecast in Revenue

Bank of America Consensus Expectations

Earnings

The bank posted a first-quarter profit of $8.1 billion, or 86 cents a share, exceeding the 66 cents a share expected by analysts surveyed by Refinitiv. Bank of America reported $22.9 billion in revenue, edging out the $21.74 billion estimate.

“While low interest rates continued to challenge revenue, credit costs improved and we believe that progress in the health crisis and the economy point to an accelerating recovery,” CEO Brian Moynihan said in the release.

Expectations are for EPS of $0.63, on revenue of $21.74 billion.

America's second-largest bank is expected to post quarterly earnings of $0.63 per share for the first quarter, which represents a year-over-year change of +57.5%. Revenues are expected to be $21.74 billion, down 4.5% from the year-ago quarter.

Rising interest rates has a positive effect on Bank of America earnings. US 10-year Treasury yield has recently been rising as investors are becoming more optimistic about the US economy.  The benefit of a +100 basis points parallel shift up in interest rates is approximately $10.5 billion for BAC. 

Bank of America in their last earnings Report (Q4 of 2020) showed the Net Interest Yield of BAC declined strongly in the aftermath of the Coronavirus and now seems to have bottomed around the 1.90% level.  With the rise in rates a strong increase in the Net Interest Income of BAC. is expected. Currently, this Q4-2020 figure is still 15% below the level of Q4-2019 figure.

Bank of America has a total provision for credit losses of $ 11.32 billion as of Q4 FY-2020. This provisioned item assumes the bank will take billion-dollar losses on its credit portfolio which seems overestimated giving the current US economic forecasts are positive and assume a strongly growing US economy.  Bank of America is currently limited by the Federal Reserve in the total amount of money it can return to its investors. The Federal Reserve will execute stress tests to validate whether the capital return restrictions for banks can be lifted. Once these limitations are ended, this will enable banks to make themselves more attractive to investors. 

 Big Banks Kick Off First Quarter 2021 Earnings Season

The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto.  

Bank of America Corporation NYSE: BAC

Market Reaction: Close 38.74 ▼ 1.14 (-2.86%)· April 15

 Highlights

Bank of America released $2.7 billion in reserves for loan losses in the quarter. Last year, the firm set aside $11.3 billion for credit losses, when the industry believed that a wave of defaults tied to the coronavirus pandemic was coming. Instead, government stimulus programs appear to have prevented most of the feared losses, and banks have begun to release more of their reserves this quarter.

  • Fixed income trading revenue jumped 22% to $3.3 billion, exceeding analysts’ estimates by roughly $660 million. '
  • Equities revenue rose 10% to $1.8 billion, about $170 million more than expected.
  • BAC posted a 62% increase in investment banking fees to $2.2 billion, almost $400 million more than analysts had expected, fueled by a 218% surge in equity underwriting fees to $900 million.
  • Bank of America separately announced a $25 billion stock repurchase program.

 

BAC Earnings Q1 2021

 

The second-biggest U.S. lender after J.P. Morgan Chase is among the most sensitive of large banks when it comes to changes in interest rates, according to analysts,  It is also the most exposed to the US economy.

 Source: BAC, AlphaStreet

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