Investment Banking Weakness vs. Mar BofA (BAC) Q2 Earnings


JInvestment banking (IB) activities, one of the main sources of income Bank of America BAC is unlikely to have had an impressive performance in the second quarter of 2022. Thus, this is unlikely to confirm BAC’s results, which are expected to be announced on July 18.

IB’s fees primarily include advisory fees (generated from mergers and acquisitions and corporate restructuring) and underwriting income (equity and debt). Let’s see how these likely fared in the quarter ahead.

After an extraordinary performance for nearly two years, closing deals across the world hit a purple spot. Soaring inflation, a stock market rout (with the S&P 500 index posting the worst first half performance in more than 50 years) and recession fears have dealt a severe blow to corporate sentiment and expansion plans by through acquisitions. Thus, the volume of transactions and the total value collapsed during the second quarter.

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

Additionally, given the aforementioned concerns, stock market performance was disappointing in the quarter ahead and as a result, IPOs and follow-on equity issuances have dried up. Similarly, the volume of bond issues has probably also been subdued. Thus, BofA’s underwriting fees (representing nearly 40% of total IB fees) are expected to have been hit in the end-June quarter.

The Zacks Consensus estimate for BAC’s IB revenue of $1.44 billion suggests a decrease of 32% from the reported level in the prior year quarter.

Second-quarter earnings and revenue growth forecasts

Zacks consensus estimate for second quarter results is pegged at 77 cents, which has seen a downward revision of 2.5% over the past seven days. The estimated figure suggests a 25.2% drop from the number reported a year ago.

The consensus sales estimate of $22.99 billion indicates an increase of 7.1%.

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

Although the performance of the IB business is expected to be subdued, strong loan demand and higher interest rates may have supported the performance of this Zacks Rank #3 (Hold) stock in the second trimester. Also, decent trading performance probably provided some support.

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

Competitive landscape

Like BAC, IB’s revenues constitute a significant portion of the total revenues of other banks such as Goldman Sachs GS and Citigroup VS

While Goldman’s leadership position in announced and completed mergers and acquisitions should have contributed to decent growth in advisory fees, low volumes in stocks and bonds should have hampered underwriting revenue. GS is expected to release its quarterly figures on July 18.

Additionally, for C, management expects a 55% drop in IB’s revenue year-over-year for the second quarter. Citigroup will release its quarterly results on July 15.

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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