Bank earnings season continues Monday with Bank of America (ticker: BAC) set to report before the market opens how it fared during the third quarter.
With JPMorgan Chase (JPM), Citigroup (C), and other banks already posting solid results on Friday, Bank of America investors should go into the week feeling confident.
As with the banks that already reported, Wall Street expects that Bank of America will see a year-over-year drop in profits due to slowing investment banking activity and a modest increase in reserves in anticipation of a weaker economy. Some of the drop, however, is expected to be offset by an increase in net interest income as the bank benefits from the Federal Reserve’s moves to lift interest rates.
Analysts surveyed by FactSet expect that Bank of America will post profits of $6.4 billion, or $0.78 a share, down from profits of $7.3 billion a year ago. Revenue is expected to be $23.5 billion, up from $22.8 billion a year ago, largely reflecting an anticipated increase in net interest income.
Of the big banks, Bank of America has been the one that is expected to fare better in the current climate. Rising interest rates widen the spread between the interest the bank earns on loans and the interest it pays on deposits.
And even with economic storm clouds brewing as many on Wall Street and Main Street brace for a recession, Bank of America appears equipped to handle any downturn. The bank learned tough lessons during the financial crisis of 2007-09 and has since been much more disciplined in its growth strategy.
Like its peers, Bank of America is expecting to see flat to negative performance in its investment banking and wealth management businesses due to challenging market conditions.
While the news from banks so far hasn’t been great, many such as JPMorgan, Citigroup, and Wells Fargo saw their stocks gain on the heels of their third quarter results as investors felt comforted that lenders could handle challenges ahead.
Bank of America shares are down 28% this year.
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