What To Expect From Bank of America’s Q2 2019 Results

by Trefis Team
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Bank of America
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Bank of America (NYSE: BAC) will report its second quarter 2019 earnings on Wednesday, 17th July. Consensus figures points to a 3% growth in revenues year-on-year to $23.25 billion, and a 13% increase in EPS figure to $0.71. Per Trefis, Bank of America’s stock has a fair value of $35, which is 15% higher than the current market price. We have analyzed how Bank of America’s revenues & expenses have changed over recent quarters in an interactive dashboard along with our expectations for full-year 2019. You can modify Trefis forecasts to see the impact of changes on Bank of America’s valuation. Additionally, you can see more Trefis data for financial services companies here.

A Quick Look At Bank of America’s Sources of Revenue

Bank of America reported $91.2 billion in Total Revenues in FY 2018. This included 5 revenue streams:

  • Consumer Banking: $37.5 billion in FY 2018 (41% of Total Revenues) – It consists of Deposits and Consumer Lending sub-segments and offers credit, banking and investment products and services to consumers and small businesses.
  • Wealth and Investment Management: $19.3 billion in FY 2018 (21% of Total Revenues) – It provides a variety of customized banking, investment and brokerage services to meet the needs of individuals and institutions. This consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) and Bank of America Private Bank.
  • Advisory & Underwriting Services: $5.5 billion in FY 2018 (6% of Total Revenues) – It offers Financial Advisory and Debt & Equity Underwriting services.
  • Corporate & Commercial Banking: $16.5 billion in FY 2018 (18% of Total Revenues) – It includes services like commercial loans, trade finance, asset based lending, and Capital Management & Treasury Solutions among others.
  • Sales & Trading: $13.7 billion in FY 2018 (15% of Total Revenues) – It offers sales and trading services to institutional clients across fixed-income, credit, currency, commodity and equity businesses.
  • All other: (-$1.3) billion in FY 2018 (-1% of Total Revenues) – This represents firm’s Global Principal Investments, Corporate Investments and Strategic Investments division.

How Have Bank of America’s Revenues & Expenses Changed Over Recent Quarters?

  • In Q1 2019, Bank of America reported Total Revenues of $23.0 billion, which is at the same level as the previous year.
  • Consumer banking revenues grew by 7% y-o-y while there was a 3% increase in corporate & commercial banking. These gains, however, were completely offset by a 17% drop in Sales & Trading revenues.
  • Although total expenses decreased by 3% y-o-y driven by efficiency savings, provision for credit loss increased by 21% (primarily due to a charge-off linked to a single utility company).

Bank of America’s Key Revenue & Expense Drivers

Business Loans Outstanding: It is the main driver of Corporate & Commercial Banking revenues which grew by 3% y-o-y in Q1 2019 driven by loan & deposit growth and higher interest rates. Average Business Loans have grown steadily over the years (CAGR 2015-2018: 5%), and reached a record high of $370.1 billion for Q1 2019. We expect the trend to continue in subsequent quarters, helping the figure grow 7% y-o-y in 2019.

Wealth Management Assets under Management (AuM): Bank of America’s Wealth Management AuM grew by 10% sequentially in Q1 2019 – as it recovered from the low equity valuations seen in the fourth quarter of 2018. Further, It has seen steady growth over recent years (CAGR 2015-2018: 4%), and is likely to follow the same trend in subsequent quarters. We expect it to grow by 18% y-o-y by the end of 2019.

Net Interest Yield as % of Total Consumer Loans: Q1 2019 recorded an overall improvement in Net Interest Yield by 9 bps y-o-y. As the Fed is expected to hold interest rates constant for the rest of the year, this key metric won’t see the strong growth it has witnessed over recent years. However, an improvement in high-yield loans (especially credit cards) should help the Consumer Banking division report a 6 bps increase in this figure to 9.62% for full-year 2019 compared to 2018.

Bank of America’s Outlook For Full Year 2019

  • We expect Bank of America to report $94.6 billion in Total Revenues for 2019, which is 4% higher than the figure for the last year.
  • Although consumer banking revenues are expected to grow by 4% y-o-y followed by corporate & commercial banking, weak Sales & Trading revenues will partially offset top line gains.
  • Notably, Wealth Management is expected to grow by 3% y-o-y primarily due to an 18% jump in Assets under Management (AUM).
  • Total Expenses would see a negligible decrease to $56.4 billion, as higher efficiency savings would offset the impact of increase in loan loss provision.
  • Net income is likely to increase by 7% y-o-y to $30.1 billion due to growth in total revenues, partially offset by higher tax rate as compared to 2018.
  • Bank of America is expected to have repurchased shares worth $2.5 billion in the second quarter. We expect the trend to continue in subsequent quarters and help its EPS figure reach $2.97 for FY 2019.
  • The EPS of $2.97 coupled with our P/E multiple of 11.8x works out to a price estimate of $35 for Bank of America’s stock – representing a potential upside of 15% for the bank’s stock.

Do not agree with our forecast? Create your own forecast for Bank of America by changing the base inputs (blue dots) on our interactive dashboard.

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