Bank of America smashes forecasts to double profits in 1st-quarter earnings as the US rebound boosts Wall Street

Bank of America trader NYSE
Bank of America’s trading division increased its revenue sharply.

Bank of America’s first-quarter earnings smashed analysts’ estimates on Thursday, with profits more than doubling year on year to $8.1 billion as the bank released reserves set aside to cover coronavirus loan losses.

BofA’s $8.1 billion of net income was far higher than analysts’ forecasts of $6.25 billion and was up from $4 billion a year earlier, when the pandemic weighed on banks. It pushed earnings per share to $0.86, well above the consensus estimate of $0.66.

The rapidly recovering US economy helped the bank release $2.7 billion from the reserves it had built up as a buffer against potential loan losses, boosting profit.

And like its peers Goldman Sachs and JPMorgan, Bank of America benefited from a boom in trading revenue during a period of stock market volatility. Revenue from sales and trading jumped 17% to $5.1 billion, the bank said.

Bank of America shares were up 1.18% in pre-market trading to $40.35 after the first-quarter earnings were released.

Here are the key numbers:

  • Net income: $8.1 billion, versus Bloomberg consensus estimate of $6.25 billion
  • Earnings per share: $0.86, versus consensus estimate of $0.66
  • Revenue: $22.8 billion, versus consensus estimate of $21.97 billion

“Our team produced exceptional results this quarter,” Bank of America chairman and chief executive Brian Moynihan said in a statement. He said the bank had achieved “record or near-record levels of deposits, investment flows, investment banking revenue, digital users and client engagement.”

However, Moynihan said that ultra-low interest rates continued to pose a challenge to revenue, with increased just 0.2% year on year to $22.8 billion. Net interest income fell 16% to $10.2 billion.

Both Goldman and JPMorgan also smashed Wall Street estimates on Wednesday, with the banking giants benefiting from a recovering economy, government stimulus and frothy markets. Wells Fargo similarly beat predictions as a turnaround effort showed early results.

“The US earnings season kicked off… with the largest US banks proving once again they can top analysts’ expectations by wide margins,” said Hussein Sayed, chief market strategist at trading platform FXTM.

“Growth in investment banking, capital markets and paring back loan loss reserves were major factors contributing to the bottom lines.”

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US stocks rise after three top Wall Street banks crushed earnings and a lively Coinbase listing

nyse surprised trader
  • US stocks rose on Thursday following blockbuster earnings results from three large banks.
  • Coinbase made its splash on the Nasdaq, closing its first day of trading at a valuation of $86 billion.
  • Fed Chair Powell said the central bank will scale back bond purchases before lifting interest rates.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks edged higher on Thursday after three of the largest US banks beat analyst expectations with their first-quarter results, and Coinbase began trading at a valuation of more than $100 billion.

The crypto exchange’s shares closed 14% lower at $328.28 per share on Wednesday, giving it a valuation of $86 billion on a fully diluted basis.

Futures on the Dow Jones, S&P 500, and Nasdaq rose between 0.3% and 0.6%, suggesting a higher open for US indices later in the day.

JPMorgan reported a 25% jump in trading revenue even as analysts expected lower volumes across the market, with an overall revenue of $33 billion for the quarter. Revenue estimates were $30.4 billion.

Goldman Sachs too posted a profitable quarter on the back of strong trading and deal-making. Wells Fargo’s earnings topped estimates as its quarterly net income rose to $4.7 billion, helped by a larger than expected release of loan loss reserves.

Fed Chairman Jerome Powell reiterated on Wednesday the central bank won’t taper its emergency asset purchases until it sees progress on its goals of above 2% inflation and maximum employment. Powell disclosed he hasn’t had conversations on policy with President Joe Biden – a sharp contrast from how former President Donald Trump frequently urged the Fed to lower interest rates and critiqued its independence.

Elsewhere in Europe, ECB President Lagarde said at a Reuters event the euro zone economy is still standing on “two crutches” of monetary and fiscal stimulus, and they shouldn’t be removed until full recovery.

Members of the ECB are scheduled to meet next week for the first time since they increased the pace of the Pandemic Emergency Purchase Programme to decelerate the surge in bond yields.

London’s FTSE 100 rose 0.3%, the Euro Stoxx 50 rose 0.2%, and Frankfurt’s DAX rose 0.4%.

Asian markets were trading lower aside data showing India reported a record 200,000 new coronavirus cases.

Shares in Japan firms with strong Chinese ties declined ahead of Prime Minister Yoshihide Suga’s meeting with President Joe Biden, as investors are wary of potential pressure to align with Washington’s tough stance on Beijing.

China’s Shanghai Composite fell 0.5%, Japan’s Nikkei gained 0.07%, and Hong Kong’s Hang Seng fell 0.4%.

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Bank stocks could jump 45% on rising bond yields and attractive relative value, Morgan Stanley says

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo
FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

  • Bank stocks could jump as much as 45% on a range of macroeconomic factors, according to Morgan Stanley.
  • “Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% YTD,” the note said.
  • Historically, bank stocks have benefitted from rising yields and a steepening curve, the note added.
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Bank stocks could jump as much as 45% on various macroeconomic factors, from a steepening yield curve to attractive relative valuation that supports the sector’s outperformance, according to Morgan Stanley.

In a note published on Wednesday, the bank listed five factors that could drive the cohort higher, especially on the expectation of a rotation to value stocks rotation continuing in the near term.

“Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% [year-to-date], outperforming the broad S&P 500 index by 15.4%,” the note, led by quantitative strategist Boris Lerner, said.

Higher rates, strong economic growth, and fiscal stimulus all contribute to the growth of support value stocks, the note said. The analysts are seeing a a 20%-45% relative upside in the base case scenario.

(1) Rising yields

Banks have historically benefitted from rising yields and a steepening curve, the note said. As yields are expected to continue going up, which will result in a steeper yield curve, bank stocks are expected to keep performing well.

(2) Attractive relative valuation

Banks trade at a significant discount to the market, the note said, and because valuations are near median levels, market valuation at this point looks relatively high. Banks are cheap relative to the market, the note said. The analysts added that the current macroeconomic environment is supportive of value stocks, which have been outperforming growth stocks since the fourth quarter of 2020.

(3) Bank earnings are set to increase

Five key factors are driving EPS growth for banks, Morgan Stanley said. They are: (1) a steepening yield curve due to rising interest rates, (2) high GDP growth, which will boost loan growth, (3) lower credit losses, (4) accelerating job growth, and (5) accelerating buybacks as earnings grow.

(4) Light positioning

Exposure to financials among equity hedge funds is at a 10-year low, Morgan Stanley said, despite the recent rally in financials stocks.

“Active long-only managers are also underweight the sector relative to passive funds,” the note said.

(5) Momentum

The recent rally in financial stocks is expected to increase the net exposure of financials within the S&P 500 from -2% to +15% in the next 3 months, the note said. “Currently, 12-month S&P 500 momentum strategies are net short financials,” the note added. “Shorter-term momentum strategies, based on 9-month or 6-month returns often lead the 12-month momentum, and these portfolios currently have financials at 15% to 23% (highest exposure relative to other sectors).”

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