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Decent Investment Banking to Support BofA (BAC) Q2 Earnings

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Performance of investment banking (“IB”) business, one of the key revenue sources of Bank of America BAC, is likely to have been decent in second-quarter 2021. This is, thus, expected to provide some support to the bank’s results, slated to be announced on Jul 14.

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

After an impressive performance over the past few quarters, deal making continued at a fast pace in second-quarter 2021, with deal volume and total value recording solid growth. This was mainly driven by brighter macroeconomic outlook, proposed tax rate hikes by President Joe Biden, substantially higher cash reserves, lower interest rates and global roll-out of COVID-19 vaccines.

Thus, BofA’s advisory fees are likely to have been positively impacted. The bank — which is one of the leading players in this space — has been focusing on further improving the M&A business. This might have provided some leverage as well.

Continuing the momentum that started in the second half of 2020, the IPO market remained active in the to-be-reported quarter. Also, there was a modest improvement in follow-up equity issuances. Amid near-zero interest rates and the Federal Reserve’s steady bond purchase program (that began in March 2020), bond issuance volumes were decent. Thus, BofA’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been decent in the second quarter.

BofA’s IB revenues are accounted in the Global Banking segment. The Zacks Consensus Estimate for the segment’s net revenues of $3.07 billion suggests a 7.9% decline from the year-ago number.

Q2 Earnings & Sales Expectations

The Zacks Consensus Estimate for BofA’s second-quarter earnings of 77 cents indicates a 108.1% jump from the prior-year reported number. However, the consensus estimate for sales of $21.85 billion suggests a 2.1% fall.

Bank of America Corporation Price and EPS Surprise

Bank of America Corporation Price and EPS Surprise
Bank of America Corporation Price and EPS Surprise

Bank of America Corporation price-eps-surprise | Bank of America Corporation Quote

Apart from IB revenues, few other major factors are likely to have influenced BofA’s overall performance during the second quarter.

Our Take

During the second quarter, the operating backdrop remained challenging. Soft loan demand and low interest rates, along with normalized levels of trading activities, are likely to have hurt this Zacks Rank #3 (Hold) stock’s top-line growth. However, decent IB performance might have offered support.

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

Earnings Release Dates for Other Major Banks

Wells Fargo WFC and Citigroup C are scheduled to release quarterly results on Jul 14, Truist Financial TFC will release numbers on Jul 15.


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