December 1, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Muted Investment Banking to Hurt BofA (BAC) in Q2 Earnings – July 14, 2023

Bank of America’s (BAC Free Report) investment banking (IB) business, one of its major revenue sources, is not expected to have performed significantly well in the second quarter of 2023. Thus, the company’s IB revenues are not likely to have provided much support to its quarterly performance. BAC’s second-quarter results are scheduled to be announced on Jul 18.

IB revenues mainly comprise advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s see how these are likely to have fared in the to-be-reported quarter.

Global deal-making continued to shrink on a year-over-year basis in second-quarter 2023, while green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.

Thus, deal volume and total deal value numbers crashed in the quarter under review. Hence, BofA’s advisory fees are likely to have been adversely impacted.

For similar reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume was also muted as investors turned pessimistic. Therefore, BofA’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have been affected in the June-ended quarter.

Our estimate for BAC’s IB fees is pegged at $1.13 billion, which indicates a marginal decline from the prior-year quarter’s reported level.

Management expects second-quarter IB revenues to be broadly flat on a year-over-year basis.

Q2 Earnings & Revenue Expectations

The Zacks Consensus Estimate for second-quarter earnings is pegged at 84 cents per share, which has been revised 1.2% lower over the past 30 days. The estimate reflects a rise of 15.1% from the year-ago reported number. Our estimate for the same is 83 cents.


The consensus estimate for sales of $24.97 billion indicates a rise of 10% year-over-year. Our estimate for sales is $24.77 billion.

Click here to know about other factors that are likely to have influenced BAC’s overall performance in the quarter to be reported.

Our Take

BAC is expected to have benefited from higher interest rates in the second quarter. However, the not-so-impressive trading and IB performances are likely to have hurt the Zacks Rank #3 (Hold) stock’s top-line growth.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

IB revenues constitute a major part of total revenues of banks like Morgan Stanley (MS Free Report) and Goldman Sachs (GS Free Report) .

While MS will report quarterly results on Jul 18, GS is slated to report second-quarter numbers on Jul 19.

For MS, management expects a year-over-year decline in IB revenues in the quarter.

Goldman Sachs’ advisory fees are also expected to have been hurt in the quarter because of a decline in deal-making. We project GS’ IB fees to be $1.75 billion in the second quarter.

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