Will Mute Investment Banking Hurt BofA (BAC) Q1 Earnings?
Zacks Investment Research | Apr 14, 2019 09:52PM ET
Performance of investment banking, one of the primary sources of revenues for Bank of America (NYSE:BAC) , is expected to be muted in first-quarter 2019. So, this will likely have an adverse impact on the bank’s results, slated on Apr 16.
Investment banking income basically comprises underwriting revenues (equity and debt) and advisory fees (generated from M&A deals and IPOs). So, let’s check how these are likely to have performed in the to-be-reported quarter.
Prolonged government shutdown at the beginning of the quarter and fears of economic slowdown weighed on companies’ plans to raise capital by issuing shares. Thus, BofA’s equity underwriting fees are expected to be weak.
Further, higher interest rates are likely to have slowed down companies’ involvement in debt issuance activities. Nonetheless, the Fed’s dovish stance on future rate hikes must have led to a slight increase in debt issuances during the quarter. Thus, debt underwriting fees (accounting for roughly 40% of total investment banking fees for BofA) might provide some support to the bank’s revenues.
Now coming to advisory fees, it is also not expected to be a great support to BofA’s top line. While dealmakers across the globe were active during the first quarter, global deal value and volume witnessed a fall due to higher borrowing costs and several geopolitical concerns.
Further, given the government shutdown and geopolitical ambiguity, IPO activities slowed down despite decent equity market performance during the quarter. So, these factors will have a slight adverse impact on BofA’s advisory fees. However, with the company being one of the leading players in this space, this will likely provide it some leverage.
Overall Earnings & Revenue Projections
Notably for BofA, the Zacks Consensus Estimate for earnings of 65 cents reflects a 4.8% increase on a year-over-year basis. Also, the consensus estimate for sales of $23.2 billion indicates a marginal rise of 0.5%.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.