25th February 2024

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Business Industry and Financial

Muted Investment Banking to Hurt BofA (BAC) in Q1 Earnings – April 14, 2023

Bank of America’s (BAC Free Report) investment banking (IB) business, one of its major revenue sources, is not expected to have performed well in the first quarter of 2023. Thus, the company’s IB revenues are not likely to have provided much support to its performance. BAC’s results are scheduled to be announced on Apr 18.

IB revenues mainly comprise advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s see how these are likely to have fared in the to-be-reported quarter.

Global deal-making remained weak for the fifth consecutive quarter. A host of factors, including geopolitical tensions, inflation, rising interest rates and fears of a global recession, acted as headwinds for M&As. These dealt a blow to business sentiments and plans for expansion through acquisitions. Thus, deal volume and total deal value crashed in the first quarter.

Hence, BofA’s advisory fees are likely to have been adversely impacted.

Given the above-mentioned concerns, IPOs and follow-up equity issuances also dried up in the to-be-reported quarter. Bond issuance volumes also witnessed a decline as investors turned pessimistic. Thus, BofA’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been hurt in the March quarter.

The Zacks Consensus Estimate for BAC’s IB income is pegged at $1.13 billion, which indicates a plunge of 22.4% from the prior-year quarter’s reported level. Our estimate for the same is $1.06 billion.

Q1 Earnings & Revenue Growth Expectations

The Zacks Consensus Estimate for first-quarter earnings is pegged at 79 cents, which has witnessed a downward revision of 1.3% over the past seven days. The estimated figure suggests a fall of 1.25% from the year-ago reported number. Our estimate for earnings is 75 cents.

The consensus estimate for sales of $25.07 billion indicates an 8% year-over-year rise. Our estimate for sales is $24.62 billion, suggesting an increase of 6%.

Click here to know about the other factors that are likely to have influenced BAC’s overall performance.

Our Take

Though the performance of the IB business is expected to have been muted, continued decent loan demand and higher interest rates are likely to have supported the Zacks Rank #4 (Sell) stock’s performance. Also, decent trading performance might have provided further support.

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

Competitive Landscape

Similar to BAC, IB revenues constitute a major part of total revenues for other banks like Goldman Sachs (GS Free Report) and Morgan Stanley (MS Free Report) .

While Goldman’s leading position in announced and completed M&As is expected to have somewhat aided decent advisory fee growth, low equity and bond volumes might have hindered its underwriting income. GS is scheduled to report quarterly numbers on Apr 18.

Similarly, for MS, the weak performance of the IB business is expected to have somewhat hurt its top-line growth in the first quarter. Morgan Stanley will come out with quarterly results on Apr 19.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.