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Weak Investment Banking to Hurt BofA (BAC) in Q4 Earnings
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Bank of America’s (BAC - Free Report) investment banking (IB) business, one of its major revenue sources, is not expected to have performed significantly well in fourth-quarter 2022. Thus, the company’s IB revenues are not likely to have provided much support to its performance. The company’s results are scheduled to be announced on Jan 13.
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.
After a stellar 2021 performance, global deal-making hit a record low in the to-be-reported quarter (for the fourth consecutive quarter). Raging inflation, geopolitical tensions, equity markets rout, higher interest rates and fears of a recession dealt a blow to business sentiments and plans for expansion through acquisitions. Thus, deal volume and total deal value crashed in the fourth quarter.
Hence, BofA’s advisory fees are likely to have been adversely impacted.
Given the above-mentioned concerns, IPOs and follow-up equity issuances 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 December-end quarter.
The Zacks Consensus Estimate for BAC’s IB income for the fourth quarter is pegged at $1.07 billion, which indicates a plunge of 54.6% from the prior-year quarter’s reported level. Our estimate for the same is $1.08 billion, which indicates a year-over-year decline of 54.1%.
Moreover, at an investor conference in December 2022, BofA CEO Brian Moynihan provided a grim outlook for the IB business. The company expects IB fees to decline 55-60% year over year.
Q4 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 80 cents, which has witnessed a downward revision of 2.4% over the past seven days. The estimated figure suggests a fall of 2.4% from the year-ago reported number. Our estimate for earnings is the same as the consensus number.
The consensus estimate for sales of $24.24 billion indicates a 9.9% year-over-year rise. Our estimate for sales is $24.19 billion, suggesting a rise of 9.7%.
Click here to learn about the other factors that are likely to have impacted BAC’s overall performance.
Our Take
Though the performance of the IB business is not expected to have been great, continued decent loan demand and higher interest rates are expected to have supported the Zacks Rank #3 (Hold) stock’s fourth-quarter performance. Also, robust trading performance is likely to have provided further support.
Similar to BAC, IB revenues constitute a major part of total revenues for other banks like Goldman Sachs (GS - Free Report) and Citigroup (C - 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 are anticipated to have hindered its underwriting income. GS is scheduled to report quarterly numbers on Jan 17.
Similarly, for C, weak performance of the IB business is expected to have somewhat hurt its top-line growth in the fourth quarter. Citigroup will come out with quarterly results on Jan 13.
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Weak Investment Banking to Hurt BofA (BAC) in Q4 Earnings
Bank of America’s (BAC - Free Report) investment banking (IB) business, one of its major revenue sources, is not expected to have performed significantly well in fourth-quarter 2022. Thus, the company’s IB revenues are not likely to have provided much support to its performance. The company’s results are scheduled to be announced on Jan 13.
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.
After a stellar 2021 performance, global deal-making hit a record low in the to-be-reported quarter (for the fourth consecutive quarter). Raging inflation, geopolitical tensions, equity markets rout, higher interest rates and fears of a recession dealt a blow to business sentiments and plans for expansion through acquisitions. Thus, deal volume and total deal value crashed in the fourth quarter.
Hence, BofA’s advisory fees are likely to have been adversely impacted.
Given the above-mentioned concerns, IPOs and follow-up equity issuances 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 December-end quarter.
The Zacks Consensus Estimate for BAC’s IB income for the fourth quarter is pegged at $1.07 billion, which indicates a plunge of 54.6% from the prior-year quarter’s reported level. Our estimate for the same is $1.08 billion, which indicates a year-over-year decline of 54.1%.
Moreover, at an investor conference in December 2022, BofA CEO Brian Moynihan provided a grim outlook for the IB business. The company expects IB fees to decline 55-60% year over year.
Q4 Earnings & Revenue Growth Expectations
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 80 cents, which has witnessed a downward revision of 2.4% over the past seven days. The estimated figure suggests a fall of 2.4% from the year-ago reported number. Our estimate for earnings is the same as the consensus number.
The consensus estimate for sales of $24.24 billion indicates a 9.9% year-over-year rise. Our estimate for sales is $24.19 billion, suggesting a rise of 9.7%.
Click here to learn about the other factors that are likely to have impacted BAC’s overall performance.
Our Take
Though the performance of the IB business is not expected to have been great, continued decent loan demand and higher interest rates are expected to have supported the Zacks Rank #3 (Hold) stock’s fourth-quarter performance. Also, robust trading performance is likely to 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 Citigroup (C - 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 are anticipated to have hindered its underwriting income. GS is scheduled to report quarterly numbers on Jan 17.
Similarly, for C, weak performance of the IB business is expected to have somewhat hurt its top-line growth in the fourth quarter. Citigroup will come out with quarterly results on Jan 13.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.