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Muted Investment Banking to Hurt BofA's (BAC) Q2 Earnings

Zacks Equity Research

Performance of investment banking, one of the primary sources of revenues for Bank of America BAC, is expected to be muted in second-quarter 2019. So, this will likely have an adverse impact on the bank’s results, slated on Jul 17.

Investment banking income basically comprises advisory fees (generated from M&A deals and IPOs) and underwriting revenues (equity and debt issuances). So, let’s check how these are likely to have performed in the to-be-reported quarter.

Trade jitters and fears of global economic slowdown hurt investment banking revenues. While dealmakers across the globe were active during the second quarter, M&A deal value and volume witnessed a decline owing to rise in borrowing costs and several geopolitical concerns.

Hence, this will hurt the bank’s advisory fees. However, with BofA being one of the leading players in this space, this will likely provide the company some leverage.

Now coming to underwriting fees, decent equity markets performance and the central banks’ dovish stance seem to have supported equity issuance across the globe. This also had a favorable impact on IPO activity during the quarter to some extent.

Nonetheless, relatively higher rates and several geopolitical concerns adversely impacted debt issuances in the to-be-reported quarter. Therefore, BofA’s equity and debt underwriting fees (accounting for almost 40% of total investment banking fees) are expected to improve marginally.

BofA’s investment banking revenues are accounted in its Global Banking segment. The Zacks Consensus Estimate for the segment net revenues of $5.04 billion indicates a 2.4% rise from the year-ago reported figure.

Overall Earnings & Revenue Projections

Notably for BofA, the Zacks Consensus Estimate for earnings of 70 cents suggests a 11.1% increase from the year-ago reported number. Also, the consensus estimate for sales of $23 billion indicates a marginal rise of 1.6%.

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

Click here to know about the other factors that are likely to influence BofA’s overall results.

Our Take

Amid a tough operating environment, weak investment banking performance is expected to have a marginal adverse impact BofA’s revenues. Along with this, dismal trading performance and muted loan growth remain concerns.

Currently, BofA carries a Zacks Rank #4 (Sell).

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

Earnings Dates of Other Major Banks

Wells Fargo WFC and JPMorgan JPM are slated to announce results on Jul 16, while PNC Financial PNC is scheduled come out with quarterly numbers on Jul 17.

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