Bank of America Corp (NYSE:BAC) will report its fourth-quarter 2013 financial results on Jan. 15, 2014. Earnings are expected to surge about nine times from last year. The results are scheduled to be released at 7 a.m. ET, followed by an investor presentation at 8:30 a.m. ET.
Wall Street expects BAC to report earnings of 26 cents a share, according to analysts polled by Thomson Reuters. In the same quarter last year, it reported earnings of 3 cents a share.
Bank of America earnings managed to beat the Street view thrice in the last four quarters, with upside surprises in the range of 11 – 50 percent. The consensus view declined by 2 cents over the past 90 days when it was estimated at 28 cents.
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During the last 30 days, six analysts cut their EPS outlook for the quarter. This underscores the tough operating environment for the bank.
Quarterly revenues are expected to fall 2.3 percent to $21.15 billion from $21.66 billion in the same quarter last year.
Despite the recent backup in long-term rates, net interest margins (NIMs) are expected to remain under pressure in the fourth quarter given sluggish loan growth and flat/lower short/medium term rates. However, NIMs are expected to rise modestly on a sequential basis.
Loan growth remains sluggish. According to Federal Reserve H.8 data for the largest 25 US banks, average loan growth remained weak, up 0.1 percent un-annualized sequentially. On a period-end basis, total loans are up 0.4 percent, following a 0.3 percent increase in the third quarter.
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Deutsche Bank analyst Matt O'Connor assumes slightly better performance in the last two weeks of the year (which tend to benefit from seasonal factors). He also believes weaker than expected fixed income, currency and commodity (FICC) trading revenues will be mostly offset by stronger than expected investment banking fees and mostly in line equity trading.
Mortgage production revenues continue to decline reflecting a drop in purchase volumes, and slower refinancing activity as the refinance boom is seemingly over. Lower volumes combined with continued gain-on-sale margin pressure should lead to lower mortgage revenues across the industry.
Investors will be focusing on loan and mortgage origination trends, and keeping an eye on operating expenses to get sight of the cost control measures of the bank.
Loans are one of the key sources of revenue for a bank, which gets interest income via lending. A reliable leading indicator for loan growth is the outflow of deposits. A borrower typically first uses its deposits to meet business needs and then draws down on its line of credit.
The market will also pay attention to trading revenues and investment banking fees – two of the biggest contributors to the topline.
Looking ahead, the Street may want color on capital market strategies given certainty surrounding Volcker and capital/liquidity rules. They may also look for company's potential actions when FICC trading revenues don't rebound.
Among the major events during the quarter, BAC's Countrywide unit won final approval of $500 million class-action settlement with investors, who claim they were misled by its Countrywide unit into buying risky mortgage-backed securities ahead of the financial crisis.
For the third quarter, Charlotte, North Carolina-based Bank of America reported net income applicable to common shareholders of $2.22 billion or 20 cents a share, compared to a net loss $33 million or breakeven per share in the prior-year quarter. Total revenue, net of interest expense, for the quarter grew to $21.53 billion from $20.43 billion in the same quarter last year.
Since reporting its third quarter results, BAC stock gained 16 percent and 43 percent in the past year. BAC shares, which has a market cap of more than $175 billion, trade 12.75 times its 2014 consensus EPS estimate.
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