Analyst Gives Bank Of America's 'Low-Quality' Beat More Scrutiny

Bank of America Corp BAC reported its second-quarter results, which came in ahead of expectations but according to one analyst should be viewed as a "low quality" beat.

UBS analyst Saul Martinez maintains a Neutral rating on Bank of America's stock with an unchanged $26 price target after the earnings report was "messy" with positive and negative non-core items mostly "washing" each other out.

Net Interest Income A Brief Concern

Bank of America's net interest income (NII) fell 0.3 percent sequentially to $11.2 billion, but was up 8.5 percent year-over-year, Martinez said. It also fell short of the $11.3 billion expected as higher short-term rates were offset by funding costs within the Global Equities division.

However, Bank of America "somewhat encouragingly" did say it expects growth in NII in the third quarter despite a $130 million headwind related to the sale of its UK cards business.

Now What?

Given the less-than-expected NII in the quarter, it appears the bank's results were "mixed" as earnings within most business segments were merely in-line with expectations.

Looking forward, management guided to a 4 percent reduction in 2018 expenses to $53 billion. Any potential reductions below this figure after 2018 should be "positively received," especially when factoring in continued NII headwinds from low rates.

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