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Muted Investment Banking to Hurt BofA’s (BAC) Q1 Earnings


The performance of investment banking, one of the primary source of revenues for Bank of America BAC, is expected to be muted in first-quarter 2018. This could have an adverse impact on the bank’s results, scheduled to be released on Monday, Apr 16.

Investment banking income comprises underwriting revenues and advisory fees. So, let’s check how these are likely to perform in the to-be-reported quarter.

Unlike prior quarters, growth in underwriting fees, consisting of debt and equity underwriting, is expected to be muted. Rising interest rates are likely to have slowed down corporates’ involvement in debt issuances. As debt origination fees account for nearly 40% of total investment banking fees for BofA, this will likely have an adverse impact on investment banking revenues.

Further, high volatility in the equity markets across the globe is expected to have somewhat slowed down equity issuances. While fourth-quarter 2017 was an exception, IPOs and follow-on offerings in the to-be-reported quarter are likely to have normalized. Thus, equity underwriting fees are anticipated to remain stable or improve marginally.

Talking about advisory fees, M&A activity in terms of deals closed globally witnessed a fall in the first quarter, though the overall deal value recorded a significant rise. Thus, as number of deals declined, this will likely adversely impact advisory fees to some extent. But as BofA is one of the leading players in this space, it may report a modest increase in advisory revenues.

For this Zacks Rank #3 (Hold) stock, investment banking revenues are accounted in its Global Banking segment. The Zacks Consensus Estimate for the segment revenues of $5 billion reflects a marginal decline on a sequential basis.

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

Overall Earnings & Revenue Projections

Notably for BofA, the Zacks Consensus Estimate for earnings of 59 cents reflects 43.9% surge on a year-over-year basis. Also, the consensus estimate for sales of $22.9 billion indicates a 3% increase from the prior-year quarter.

Bank of America Corporation Price and EPS Surprise

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

Click here to know more about the factors that could influence BofA’s overall results.

Our Take

Amid an improving operating backdrop, muted growth in investment banking revenues is expected to hurt BofA’s top line to some extent. Nonetheless, rising interest rates, decent loan growth and reversal in trading activities are expected to support the bank’s revenues.

Earnings Schedules of Other Major Banks

JPMorgan JPM, Citigroup C and PNC Financial PNC are scheduled to release first-quarter results on Apr 13.

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