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 hover near record highs as traders digest strong mega-cap bank earnings

NYSE traders
  • The S&P 500 stuck close to record highs as the first-quarter earnings season kicked off.
  • Goldman Sachs, JP Morgan Chase and Wells Fargo each turned in better-than-expected results.
  • Coinbase will make its trading debut on Wednesday.
  • See more stories on Insider’s business page.

US stocks clung near record highs Wednesday as the first-quarter earnings season began its shift into high gear with blowout earnings results from big banks including Goldman Sachs.

The S&P 500 sought to build on its record close Tuesday that was led by tech stocks. Shares in that sector were also higher on Wednesday, giving a boost to the Nasdaq Composite.

The new quarterly earnings season started out with JP Morgan Chase JP Morgan Chase and Wells Fargo each turning in profit that surpassed Wall Street’s targets. Goldman Sachs beat revenue and profit expectations, aided by strong trading and investment banking revenue.

Here’s where US indexes stood at 9:30 a.m. on Wednesday:

A light economic calendar will “leave plenty of time for investors to watch the debut of Coinbase to the public markets. The listing couldn’t come at a better time for the company as crypto-currencies have been on absolute fire with both bitcoin and ether trading at record highs and riding what looks to be their seventh straight day of gains,” said Paul Hickey, co-founder of equity research firm Bespoke in a note.

Around the markets, Credit Suisse reportedly put $2 billion of Archegos-linked stocks on the market after the hedge fund’s meltdown. Part of the stock offering included Discovery Communications whose shares were lower Wednesday.

The First North American bitcoin ETF surges beyond $1 billion under management.

Gold fell 0.5% to $1,737.50 per ounce. Long-dated US treasury yields rose, with the 10-year yield at 1.634%.

Oil prices rose. West Texas Intermediate crude gained 2.2% to $61.50 per barrel. Brent crude, oil’s international benchmark, moved up 2.1% to $65.05 per barrel.

Bitcoin surged to $64,115.

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US companies are expected to see their strongest profit growth in nearly 20 years after downward revisions were ‘too aggressive’

oil texas
First-quarter earnings projections for the energy sector have more than doubled.

  • Earnings for S&P 500 companies are expected to rise by 6% in the first quarter of 2021, according to FactSet data.
  • A 6% increase would mark the largest rise since the firm starting tracking the bottom-up EPS estimate in early 2002.
  • The energy and materials sectors are on track to post double-digit increases in earnings.
  • See more stories on Insider’s business page.

Expectations for quarterly earnings growth are at their strongest in about two decades as analysts pencil in the impact of the US economy’s acceleration out of recession, led by projections for earnings in the energy sector to more than double.

A big wave of financial reports should hit Wall Street in mid-April, with big banks including JPMorgan Chase, Goldman Sachs and Wells Fargo among the companies that will kick off the first-quarter earnings season for 2021.

Ahead of that, Wall Street analysts are looking for S&P 500 500 companies overall to post a 6% increase in bottom-up per-share earnings, according to FactSet. A 6% rise would represent the largest increase since the financial-data firm began tracking the earnings estimate in the second quarter of 2002. Earnings, on average, are currently expected to come in at $39.86 per share.

The bottom-up EPS estimate is an aggregation of the median first-quarter earnings-per-share estimates for all of the companies in the S&P 500, FactSet said in a note published Thursday.

The projected 6% increase stands out in part because a bottom-up EPS estimate usually decreases during a quarter. FactSet said during the past five years, the estimate has recorded a decline of 4.2% during a quarter, and during the past 15 years, it has tended to post a decrease of 5.1%.

Analysts “may have been too aggressive in their downward revisions to EPS estimates during the first half of 2020 at the height of the COVID-19 lockdowns,” wrote John Butters, senior earnings analyst at FactSet, in looking at the factors behind the boost in first-quarter projections.

The global economy sunk into recession last year as the coronavirus pandemic forced businesses worldwide to close or reduce operations to curb the spread of the respiratory disease. The US economy contracted by 33% in the second quarter of 2020.

But analysts in the third quarter of 2020 began raising their earnings expectations for that quarter and beyond. FactSet foresees US gross domestic product expanding by 5.7% in 2021, higher than the projected 4% rate on December 31.

Read more: Goldman Sachs says buy these 33 stocks now as profits rebound for companies that suffered the most during the pandemic

Rising commodity prices and interest rates also appear to be fueling upward revisions. Oil prices have jumped by more than 20% to top $59 a barrel during the first quarter and the yield on the 10-year Treasury note quickly scaled up above 1.7% during the first three months of this year from 0.92%.

The highest percentage increases in bottom-up EPS estimates are for the energy, materials, and financials sectors as they are “likely benefitting from either higher commodity prices (Energy and Materials) or higher interest rates (Financials),” said Butters.

Per-share earnings estimates for the energy sector have shot up by 123%, to $2.55 from $1.14, the largest boost in projections among the 11 sectors tracked on the S&P 500 index. The financial sector is forecast to post a collective earnings increase of about 13% for the first quarter.

“Finally, companies in the S&P 500 have been much more optimistic in their EPS guidance than normal,” said Butters, noting that 61 companies have issued positive first-quarter guidance, well above the five-year average of 35.

“If 61 is the final number for the quarter, it will mark the highest number of S&P 500 companies issuing positive EPS guidance for a quarter since FactSet began tracking this metric in 2006,” he said.

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