Bank of America (NYSE: BAC) is due to release its second-quarter earnings report before US markets open on Monday, July 18. The report will cover the quarter ending in June. The bank can have a higher net interest income in the second quarter, but some factors can decrease its earnings.
Optimistic investors and concerns about financial markets
Two weeks ago, BAC had a poor result in the Federal Reserve's stress tests. However, it said it would increase its quarterly common stock dividend by $0.01 to $0.22 per share. In the past four quarters, the EPS beating rate was 75% of the time.
Earnings starting was not so much fine for financial institutes. JPMorgan (JPM) and Morgan Stanley (MS) had already their reports and missed the estimates by posting $2.76 and $1.44 EPS, respectively. Both also missed the revenue estimates. Of course, it is worth mentioning that Citigroup (C), with $2.19 EPS and $19.64B revenue, could beat the estimates with significant positive results.
Wall Street expects a 5.8% rise in revenue net of interest expense to $22.8 billion in the second quarter (+6.1% Y/Y), and $0.75 EPS, down over 27% from last year.
Overall Earnings & Revenue Growth Expectations by Zacks investment research is $0.77 for EPS, which shows a fall of 25.2% from the year-ago reported number. Revenue expectation also at $22.99 billion indicates a 7.1% year-over-year rise.
Latest economic and geopolitical changes, fears of an economic slowdown, including 40-year-high inflation numbers, increasing the rates by FED, and market risks of the Russia-Ukraine conflict increased the bank's trading activities, and it seems to continue. The Zacks Consensus Estimate for trading revenues of $3.61 billion suggests an increase of 1.3% from the prior-year quarter's reported number.
In Q1 2022, the bank could beat the estimated revenue by $23.2 billion, which shows almost 2% annual growth. Most income of the bank in the first quarter respectively came from growth in the net interest income driven by a higher deposit balance and a slight increase in the net interest margin. One of the main risks was the credit losses in the last two quarters. However, that was not that bad as economic recovery was better than expectations. For the second quarter also still economy was growing. Therefore, this risk most probably will affect the third and fourth quarters.
The main business of BAC, including the consumer banking division, wealth management, sales & trading, and investment banking businesses, had grown fine in the past four quarters. For this quarter also it is expected to see the same growth, with maybe lower pace.
From the technical point of view, BAC share has strong support at around $30; breaching this level can put the lower digits in the spotlight, especially if the price moves under $29. On the flip side, a positive report can help the bulls to grow from this level unless the overall negative sentiment is back in the markets.