Weakness In Investment Banking To Mar BofA (BAC) Q2 Earnings

The investment banking (IB) business, one of the major revenue sources of Bank of America BAC, is not expected to have performed impressively in second-quarter 2022. Thus, the same is not likely to support BAC's results, scheduled to be announced on Jul 18.

IB fees 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 an extraordinary performance for almost two years, deal-making across the globe hit a purple patch. Raging inflation, equity markets rout (with the S&P 500 Index witnessing the worst first-half performance in more than 50 years) and fears of recession dealt a huge blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value numbers crashed during the second quarter.

Hence, BofA's advisory fees are likely to have been adversely impacted.

Further, given the above-mentioned concerns, the equity market performance was disappointing in the to-be-reported quarter and thus, IPOs and follow-up equity issuances dried up. Likewise, bond issuance volume is likely to have been muted too. Thus, BofA's underwriting fees (accounting for almost 40% of total IB fees) are expected to have been hurt in the June-end quarter.

The Zacks Consensus Estimate for BAC's IB income of $1.44 billion suggests a decrease of 32% from the prior-year quarter's reported level.

Q2 Earnings & Revenue Growth Expectations

The Zacks Consensus Estimate for second-quarter earnings is pegged at 77 cents, which has witnessed a downward revision of 2.5% over the past seven days. The estimated figure suggests a fall of 25.2% from the year-ago reported number.

The consensus estimate for sales of $22.99 billion indicates a 7.1% rise.

Bank of America Corporation Price and EPS Surprise

Bank of America Corporation price-eps-surprise | Bank of America Corporation Quote


Our Take

Though the performance of the IB business is expected to have been muted, solid loan demand and higher interest rates might have supported this Zacks Rank #3 (Hold) stock's second-quarter performance. Also, decent trading performance is likely to have provided some support.

Competitive Landscape

Similar to BAC, IB revenues constitute a major part of total revenues for other banks like Goldman Sachs GS and Citigroup C.

While Goldman's leading position in announced and completed M&As is expected to have aided decent advisory fees growth, low equity and bond volumes are anticipated to have hindered underwriting income. GS is scheduled to report quarterly numbers on Jul 18.

Further, for C, management expects a 55% year-over-year slump in IB revenues for the second quarter. Citigroup will come out with quarterly results on Jul 15.

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