The bank earnings season continues today with Bank of America reporting before market open, the final major institution in the sector’s concentrated reporting window after Goldman Sachs, JPMorgan, Citigroup, Wells Fargo and Morgan Stanley all delivered results between Monday and Wednesday of this week.
The results seen so far have painted a market in two distinct camps, those institutions whose investment banking and trading operations benefited from Iran-war volatility, and those whose more consumer-focused or deposit-sensitive franchises have found the same environment more challenging.
Bank of America sits in a category of its own, holding a large portfolio of longer-duration fixed-rate loans and securities from the low-rate era that have suppressed its net interest margins as interest rates have moved higher and stayed elevated. The so-called held-to-maturity bond portfolio, carrying unrealised losses of substantial size, has been a recurring topic with investors and analysts. As the Fed maintains rates at the 3.50 to 3.75 percent range and any easing timeline remains compressed by war-related inflation, the pace at which those bonds roll off and reprice is the single most important driver of Bank of America’s medium-term earnings trajectory.
Analysts project continued improvement in net interest income compared to the year-ago period, and investment banking fees should show a healthy year-on-year increase given the broader sector trend.
Trading revenues will be watched closely as a test of whether Bank of America’s markets business has participated in the volatility-driven performance that lifted JPMorgan so decisively.
Morningstar, which rates Bank of America as the most attractively valued stock in the major bank group, has a price target implying roughly 15 percent upside from current levels. The investment thesis centres on the gradual normalisation of the held-to-maturity portfolio and the operational leverage embedded in a business whose cost base is relatively fixed and whose revenues are likely to grow significantly as rates eventually ease.
