Bank of America Corporation (NYSE: BAC) will report its third-quarter 2013 financial results on Oct. 16, 2013. The results are scheduled to be released at 7 a.m. ET, followed by an investor presentation at 8:30 a.m. ET.
Wall Street expects BAC to report earnings of 18 cents a share, according to analysts polled by Thomson Reuters. In the same quarter last year, it reported breakeven results.
Bank of America earnings managed to beat the Street view thrice in the last four quarters, with upside surprises in the range of 28 – 100 percent.
The consensus view declined significantly over the past 90 days when it was estimated at 26 cents. During the last 30 days, four analysts have upped their earnings view on BAC while six analysts have cut their EPS outlook for the quarter. This underscores the tough operating environment for the bank.
Quarterly revenues are expected to grow 7.9 percent to $22.03 billion from $20.43 billion in the same quarter last year.
The entire banking sector is facing the headwind of lower mortgage income due to higher interest rates that hurt refinancing activity. Investors will be focusing on loan and mortgage origination trends, and should keep an eye on operating expenses to get a hindsight of the cost control measures of the bank.
Loans are one of the key sources of revenue for a bank, which gets interest income via lending. A reliable leading indicator for loan growth is the outflow of deposits. A borrower typically first uses its deposits to meet business needs and then draws down on its line of credit.
There has been a continued slowdown in commercial and industrial (C&I) loan growth to just 2.9 percent annualized in the third quarter to date from 9.0 percent in the second quarter and 15.4 percent in the first quarter. Deposit growth accelerated in the third quarter to date to 6.2 percent versus 2.2 percent in the second quarter.
As a result, BAC's net interest margins (NIMs) are likely to remain under pressure in the t! hird quarter given sluggish loan growth.
A number of BAC's stronger business lines suffered large slowdowns in the third quarter due to high yield and structured credit and iStock wouldn't be surprised to see worse than the peer group performance in these businesses. The third quarter saw the departures of both BAC's co-Head of FICC and its Head of Securitized Products.
The market will also pay attention to trading revenues and investment banking fees – two of the biggest contributors to the topline.
In addition, the market will look for comments over its mortgage settlement issues with AIG. Bank of America has rejected a request from insurer American International Group, Inc. (NYSE: AIG) and other investors to renegotiate the $8.5 billion settlement deal that was struck in July 2011 over soured mortgage-backed securities.
Among the peers, Wells Fargo & Co. (NYSE: WFC) reported a 13 percent increase in profit for the third quarter due to a sharp drop in loan loss provisions. Earnings per share rose to 99 cents from .88 cents and topped Street view of 97 cents. Revenue for the quarter dropped to $20.5 billion from $21.2 billion in the prior year. Wall Street expected revenues of $20.97 billion.
JPMorgan Chase & Co. (NYSE: JPM) reported a $380 million loss for its third quarter after it took a $7.2 billion charge to cover the cost of mounting litigation and regulatory probes. However, adjusted EPS of $1.42 topped Street view by a wide margin.
For the second quarter, Bank of America reported net income of $3.57 billion or 32 cents a share, up from $2.5 billion, or 19 cents a share, in the second quarter of 2012. Revenue, net of interest expense, rose to $22.73 billion from $21.97 billion a year ago
Since reporting its second quarter results, BAC stock has dropped about 1 percent but gained 52 percent in the past year. BAC shares, which has a market cap of more than $151 billion, trade 10.3 times its 2014 consensus EPS estimate.
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