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BofA (BAC) Sees Q3 IB Fee Dip, Reiterates NII & Expense Outlook
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At a time when the performance of the overall investment banking (“IB”) business is unimpressive, Bank of America Corporation’s (BAC - Free Report) chief financial officer, Alastair Borthwick, said at the Barclays Global Financial Services Conference that IB fees for the sector are down 30-35% in the third quarter of 2023 from the year-earlier quarter. However, BofA’s IB performance is expected to be better than the average.
At the conference, while speaking about the overall IB performance, Borthwick stated, “We'll do slightly better than that, but that still puts the investment banking fees, which are probably right around $1 billion mark.”
In the last reported quarter, when most finance firms recorded subdued IB business performance, BofA’s IB numbers were impressive.
Notably, IB revenues comprise advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt).
In the second quarter, while a few green shoots were visible toward the end, global deal-making continued to shrink on a year-over-year basis. Factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds, which resulted in a decline in deal volumes and the total deal value numbers.
For similar reasons, IPOs and follow-up equity issuances dried up and bond issuance volumes were muted as investors turned pessimistic.
Because of the above-mentioned woes, the performance of banking rival JPMorgan’s (JPM - Free Report) IB business was discouraging in the last reported quarter. While JPM’s equity underwriting fees jumped 30%, debt underwriting fees were down 6% year over year. Also, advisory fees declined 19%. Hence, JPM’s total IB fees fell 6% from the prior-year quarter.
However, BofA’s second-quarter IB business performance was impressive. Its total IB fees of $1.21 billion increased 7.4% year over year. Also, Global Banking IB fees of $718 million grew 4% in the quarter, driven by a 154% surge in equity underwriting fees.
While the situation for the overall IB business has improved somewhat, it is too early to say that the trend for the sector has reversed completely. Weakness in the IB business will likely remain till the macroeconomic and geopolitical ambiguity continue.
Because of the dismal performance of the capital markets, JPMorgan has also provided a bleak outlook for trading and IB revenues for the third quarter of 2023.
At the conference, JPM CEO, Jamie Dimon, stated that trading business is projected to be “down 1% or 2%” both year over year and sequentially, while “it's something like that in investment banking” too.
However, Dimon reaffirmed its net interest income (NII) guidance for 2023. He said, “NII, I think we have given your numbers as they haven't really changed that much, you have them, right, whatever they are, they're the same as they were before.” JPM projects NII of $87 billion this year, up 30% year over year.
JPM also reiterated its expense guidance at $84.5 billion for 2023.
Apart from this, Truist Financial (TFC - Free Report) reaffirmed its non-interest expense outlook.
TFC anticipates current-quarter adjusted expenses to be flat or down 1% sequentially and for the full year, the metric is expected to grow almost 7%.
Coming back to BofA, apart from giving IB guidance for the third quarter, Borthwick said that the company’s Global Markets income will likely rise in the low-single-digit range on a year-over-year basis.
Like JPM, Borthwick reiterated BAC’s NII and non-interest expense guidance at the conference.
Bank of America expects third-quarter NII to be at the same level as the second quarter ($14.2-$14.3 billion), whereas the fourth-quarter NII is expected to be $14 billion.
The company expects expenses in the third and fourth quarters of 2023 to be somewhere near $15.8 billion and $15.6 billion, respectively.
In the past three months, shares of BAC have lost 3.1% compared with the industry’s fall of 2.5%.
Image: Bigstock
BofA (BAC) Sees Q3 IB Fee Dip, Reiterates NII & Expense Outlook
At a time when the performance of the overall investment banking (“IB”) business is unimpressive, Bank of America Corporation’s (BAC - Free Report) chief financial officer, Alastair Borthwick, said at the Barclays Global Financial Services Conference that IB fees for the sector are down 30-35% in the third quarter of 2023 from the year-earlier quarter. However, BofA’s IB performance is expected to be better than the average.
At the conference, while speaking about the overall IB performance, Borthwick stated, “We'll do slightly better than that, but that still puts the investment banking fees, which are probably right around $1 billion mark.”
In the last reported quarter, when most finance firms recorded subdued IB business performance, BofA’s IB numbers were impressive.
Notably, IB revenues comprise advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt).
In the second quarter, while a few green shoots were visible toward the end, global deal-making continued to shrink on a year-over-year basis. Factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds, which resulted in a decline in deal volumes and the total deal value numbers.
For similar reasons, IPOs and follow-up equity issuances dried up and bond issuance volumes were muted as investors turned pessimistic.
Because of the above-mentioned woes, the performance of banking rival JPMorgan’s (JPM - Free Report) IB business was discouraging in the last reported quarter. While JPM’s equity underwriting fees jumped 30%, debt underwriting fees were down 6% year over year. Also, advisory fees declined 19%. Hence, JPM’s total IB fees fell 6% from the prior-year quarter.
However, BofA’s second-quarter IB business performance was impressive. Its total IB fees of $1.21 billion increased 7.4% year over year. Also, Global Banking IB fees of $718 million grew 4% in the quarter, driven by a 154% surge in equity underwriting fees.
While the situation for the overall IB business has improved somewhat, it is too early to say that the trend for the sector has reversed completely. Weakness in the IB business will likely remain till the macroeconomic and geopolitical ambiguity continue.
Because of the dismal performance of the capital markets, JPMorgan has also provided a bleak outlook for trading and IB revenues for the third quarter of 2023.
At the conference, JPM CEO, Jamie Dimon, stated that trading business is projected to be “down 1% or 2%” both year over year and sequentially, while “it's something like that in investment banking” too.
However, Dimon reaffirmed its net interest income (NII) guidance for 2023. He said, “NII, I think we have given your numbers as they haven't really changed that much, you have them, right, whatever they are, they're the same as they were before.” JPM projects NII of $87 billion this year, up 30% year over year.
JPM also reiterated its expense guidance at $84.5 billion for 2023.
Apart from this, Truist Financial (TFC - Free Report) reaffirmed its non-interest expense outlook.
TFC anticipates current-quarter adjusted expenses to be flat or down 1% sequentially and for the full year, the metric is expected to grow almost 7%.
Coming back to BofA, apart from giving IB guidance for the third quarter, Borthwick said that the company’s Global Markets income will likely rise in the low-single-digit range on a year-over-year basis.
Like JPM, Borthwick reiterated BAC’s NII and non-interest expense guidance at the conference.
Bank of America expects third-quarter NII to be at the same level as the second quarter ($14.2-$14.3 billion), whereas the fourth-quarter NII is expected to be $14 billion.
The company expects expenses in the third and fourth quarters of 2023 to be somewhere near $15.8 billion and $15.6 billion, respectively.
In the past three months, shares of BAC have lost 3.1% compared with the industry’s fall of 2.5%.
Image Source: Zacks Investment Research
Currently, BAC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.