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Muted Trading Performance to Hurt BofA's (BAC) Q2 Earnings

Zacks Equity Research

Similar to the previous quarter, the second quarter of 2019 witnessed a disappointing trading environment. Hence, Bank of America’s BAC trading revenues (constituting a substantial part of its top line) will likely get hampered and have an adverse impact on its overall results slated on Jul 17, before market open.

During the second quarter, a few concerns, including some lingering ones from the prior quarters like uncertainty related to Brexit and U.S.-China trade war, and expectations of global economic slowdown persisted. The Federal Reserve’s policy accommodation stance led to ambiguity as well.

Despite these concerns, performance of equity markets was decent. But that was not enough to result in a significant increase in client activity and volumes as these factors weighed on investors’ mind, resulting in lower volatility.

Therefore, BofA’s trading revenues in the to-be-reported are expected to be muted. Further, during an investors’ conference in late May, CEO Brian Moynihan had commented that trading revenues will likely decline 8% sequentially and 10% year over year.

The Zacks Consensus Estimate for Global Markets segment (under which trading revenues are accounted for) net revenues of $4.13 billion indicates a decline of 2.1% from the year-ago reported number.

Overall Earnings & Revenue Growth Expectations

For BofA, the Zacks Consensus Estimate for earnings of 70 cents indicates 11.1% growth from the prior-year quarter. Also, the consensus estimate for sales of $23 billion suggests an 1.6% increase.

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 impact BofA’s overall results.

Our Take

Muted loan growth and dismal growth in investment banking along with lower trading income are likely to hurt this Zacks Rank #4 (Sell) stock’s second-quarter revenues to some extent.

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

Trading Revenue Projections for Other Companies

Trading revenues form a major portion of total revenues for JPMorgan JPM, Goldman Sachs GS and Morgan Stanley MS. Similar to BofA, dismal trading performance is expected to hurt these banks’ revenues and earnings in the second quarter.

During an investor conference, JPMorgan CEO Jamie Dimon had warned of a decline in trading revenues. The company witnessed a 4-5% fall in trading revenues during the first two months of the second quarter (excluding a gain), while Dimon noted that “the next month could dramatically change that.”

At Morgan Stanley, trading revenues are projected not to reach first-quarter 2019 levels, following a tough start to June. CEO James Gorman noted that trading in the second quarter has been “challenging.”

In an interview to CNBC, Goldman CEO mentioned that the quarter has been “up and down”, while refraining from providing any outlook on the company’s trading revenues.

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