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What to Expect from Bank of America’s Third-Quarter Earnings

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Third-quarter expectations

Bank of America (BAC) plans to report its third-quarter 2018 results on October 15. The company, the second-largest US bank based on market capitalization after JPMorgan (JPM), has an impressive record of beating earnings estimates. The bank has surpassed Wall Street estimates in the last six quarters by an average of 6.6%.

For the third quarter, Bank of America is expected to post earnings per share (or EPS) of $0.62, implying an increase of 29.2% on a YoY basis. Furthermore, analysts project revenues to grow 3.3% on a YoY basis to $22.8 billion.

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Driving factors

The robust growth is anticipated to come from book expansion, improved rate spreads and an increase in trading activity and wealth management, partially offset by weaker investment banking fees in line with the industry trend. Nonetheless, as volatility has declined in recent months, trading income is expected to fall sequentially.

Overall, banks (XLF) have benefitted from the rising rates that have expanded their net interest margins. However, credit offtake growth is likely to somewhat negatively impact corporate taxes, and the Federal Reserve’s rate hikes are hurting mortgage loan demand.

Among bankers, J.P. Morgan has had the highest credit offtake growth rate in recent quarters, followed by Bank of America and Citigroup (C). Bank of America’s loan book grew 7% YoY in the second quarter of 2018, which is in line with J.P. Morgan’s growth. Citigroup’s credit offtake increased ~2%. In contrast, Wells Fargo’s (WFC) credit offtake has fallen ~1% YoY, as the bank is struggling with compliance and fraud-related issues.

Interest income is anticipated to remain a major factor behind Bank of America’s YoY growth, followed by trading income, asset management, and investment banking. As rates rise, credit offtake growth could be a major driver for bankers this year. In this series, we’ll study the expected performance of Bank of America’s segments, its strategic investments, and its long-term valuation.

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