Can Bank of America’s Revenues Breach The $100-Billion Mark By 2021?

by Trefis Team
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Bank of America
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Bank of America (NYSE:BAC) is one of the leading financial institutions in the U.S. which offers consumer banking, credit cards, commercial banking, investment banking, sales & trading, and wealth management services. The end users include retail customers, high net-worth individuals, small business, corporates, and institutional investors. The bank faces stiff competition from offerings by its global competitors such as: JPMorgan, Goldman Sachs, Morgan Stanley, Capital One, Citigroup and Wells Fargo.

Trefis details the key components of Bank of America’s Revenues in an interactive dashboard, along with our forecast for the next three years. While Bank of America has reported a strong 4% growth in revenues over the last 3 years, we believe that the growth rate will slow down to 2% over coming years. This implies a total revenue figure of $95.6 billion for 2021. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for Bank of America’s revenues. Additionally, you can see more Trefis data for financial companies here.

[A] Consumer Banking Revenues are expected to increase from $37.5 billion in 2018 to $39.5 billion by 2021

  • It consists of Deposits and Consumer Lending sub-segments and offers credit, banking and investment products and services to consumers and small businesses.
  • We expect the growth rate to reduce from above 8% over 2016-2018 to below 2% for the next three years.
  • This could be attributed to slower growth in net interest income, which is the main revenue driver.

[B] Corporate & Commercial Banking Revenues are expected to continue their current growth trajectory

  • It includes services like commercial loans, trade finance, asset based lending, and Capital Management & Treasury Solutions among others.
  • Corporate & Commercial Banking Revenues have grown at an average annual rate 4% over the last three years, which is expected to continue in the subsequent years. This would enable it to cross $18.3 billion by 2021.
  • Further, we expect business lending revenues to recover in 2019 and grow at an average rate of 4% over 2019-2021.

[C] Wealth & Investment Management Revenues have grown at an average annual rate of 5% over the last three years, but we expect it to struggle over the next three

  • 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.
  • The revenue is expected to reduce due to a decline in fee income which would reduce from $13 billion in 2018 to $12.4 billion by 2020, before improving slightly to $12.5 billion by 2021.
  • Overall, wealth management revenues would reduce from $19.3 billion in 2018 to $19.2 billion by 2021.

[D] Investment Banking Revenues will trend lower in 2019 before nudging higher

  • It includes fees from M&A Advisory and Debt & Equity Underwriting services
  • Investment Banking revenues are very sensitive to global M&A scenario and debt capital markets. It has shown high volatility over the last three years.
  • We expect it to reduce by 6% in 2019 due to slump in debt origination fees, before increasing by 3% in 2020 and 2021.
  • This would enable it to recover to the 2018 level of $5.5 billion in revenues.

[E] Sales & Trading revenues are expected to decrease over the next three years.

  • This segment offers sales and trading services to institutional clients across FICC (fixed-income, credit, currency & commodity) and equity businesses.
  • Sales & Trading revenues have fluctuated over the last three years due to volatile market conditions. We expect it to drop by 8% in 2019 due to negative bond market scenario and then stay around the same level for the next two years.
  • Overall, It is expected to reduce from $13.7 billion in 2018 to $12.8 billion by 2021.

[F] All Other revenues should increase gradually, but will still remain too small to materially impact the top line

  • This represents firm’s Global Principal Investments, Corporate Investments and Strategic Investments division.
  • We expect it increase from -$1.3 billion in 2018 to $0.3 billion by 2021.

Trefis estimates Bank of America’s stock (shows cash and valuation analysis) to have a fair value of $33.50, which is 20% higher than the current market price. Our price estimate incorporates changes to our forecast based on Bank of America’s earnings release last month.

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