Dismal investment banking will hurt BofA’s Q1 earnings (BAC)

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The investment banking (“IB”) business, one of the main sources of revenue for Bank of America BAC is unlikely to have delivered an impressive performance in the first quarter of 2022. Thus, the IB business will likely not have supported BAC’s results, which are expected to be announced on April 18.

IB’s fees primarily include advisory fees (generated from mergers and acquisitions and corporate restructuring) and underwriting income (equity and debt). Let’s check how likely these are to have been in the reportable quarter.

After an astonishing performance for nearly two years, deal making came to a screeching halt in March. The ongoing conflict between Russia and Ukraine (causing instability in stock markets around the world) and ambiguity over the inflation-linked economic slowdown weighed on business confidence. Thus, the volume of transactions and the total value of transactions experienced a decline in the first quarter.

Therefore, BofA’s advisory fees are likely to have been adversely affected.

Given the aforementioned concerns, equity market performance was disappointing in the quarter to report and as a result, IPOs and follow-on equity offerings dried up. Again, bond issues have probably been decent. Thus, BofA’s underwriting fees (representing nearly 40% of total IB fees) are expected to have been hit in the end-March quarter.

Zacks’ consensus estimate for the company’s first-quarter IB revenue of $1.83 billion suggests a 22% decrease from the prior quarter’s reported level.

First quarter profit and revenue growth forecast

Zacks consensus estimate for first quarter results is pegged at 76 cents, which has seen a downward revision of 2.6% over the past 30 days. Furthermore, the estimated figure suggests an 11.6% drop from the number reported a year ago.

The consensus sales estimate of $23.2 billion indicates an increase of 1.7%.

Bank of America Corporation course and surprise EPS

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

Click here know the other factors that may have had an impact on the overall performance of LAC.

Our opinion

While the performance of the IB business should have been dismal, decent loan demand should have supported the performance of Zacks Rank #3 (Hold) stock in the first quarter. Additionally, strong trading performance likely provided further support.

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

Competitive landscape

For JP Morgan JPM, the performance of its IB business was disappointing, as analysts had expected. JPM’s stock and debt underwriting fees fell 78% and 20%, respectively, year-over-year. Again, the company’s advisory fees were something of a saving grace, as they increased by 18%. Still, JPMorgan’s total IB fees were down 31% from the year-ago quarter.

Another investment bank Moelis & CompanyMC’s investment banking performance for the quarter ahead is also not expected to be good. MC is due to release its quarterly results on April 27.

Stay up to date with upcoming results announcements with the Zacks Earnings Schedule.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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