Bank of America (BAC) is expected to post earnings per share or EPS of $0.59 in 1Q18, marking growth of 43.9% on a YoY basis, reflecting gains from higher rates, trading, and lower taxes. The bank’s top line is expected to rise 2.6% to $23.0 billion, largely due to higher net interest margins or NIMs, a marginal rise in trading activity, and higher advisory fees, and partially offset by lower performance income of the asset management business.
Commercial banks (XLF) are expected to see their spread earnings expand on higher interest rates and overall growth in the economy. Bank of America, due to its diversified offerings, is poised to garner a higher share of growth in credit offtake in the United States. However, overall offtake growth is expected to be lower than the 2017 numbers.
On the non-interest earnings front, trading activity could rebound marginally in 1Q18 for Bank of America and other select bankers, largely due to higher volatility. In the wealth management business, the bank could add long-term flows, however, it should see a decline in performance fees. In investment banking, corporate activity and underwriting are expected to drive advisory fees in 1Q18.
In 4Q17, Bank of America posted EPS of $0.48, beating estimates by $0.04. The bank benefited from growth in the Consumer and Global Banking division and the Wealth Management division, whereas trading remained a drain on performance. The bank’s loans and deposits rose 9% and 8%, respectively, on a YoY basis.
Trading activity has been lower across the industry, with Goldman Sachs (GS) seeing the highest slide, whereas Citi (C) and JPMorgan (JPM) have seen relatively modest declines. Bank of America generated adjusted return on assets of 0.9% and an adjusted return on equity of 7.8%.
In this series, we’ll study Bank of America’s expected performance in 1H18, changing industry dynamics, equities, trading, wealth, dividends, and buying opportunities.