Not too long ago, Bank of America (ticker: BAC) appeared ready to catch up to, if not outpace, its more prestigious competitor. CEO Brian Moynihan built a stable, albeit uninteresting, institution using the company’s substantial deposit base after the financial crisis.
Low Yielding Mortgage Securities
(WFC) remains subject to a consent decree. Compared to JPMorgan’s 9.6 times profits, BofA trades at a 15% discount, or 8.2 times earnings. The bank’s substantial holdings of bonds, including low-yielding mortgage securities, are the cause for concern as they resulted in unrealized losses of $105.8 billion at the end of the second quarter. Those losses most certainly went up by $10–$15 billion.
Erika Najarian of UBS said that of the companies on our coverage list, BAC is by far the most talked about. “We are discussing unrealized losses on BAC’s held to maturity securities portfolio, and it almost seems surreal that we are here again.”
According to Bank of America, the portfolio is a problem that it has been addressing. During the company’s first-quarter results call, Chief Financial Officer Alastair Borthwick stated, “You know that we’re just taking the portfolio and making it smaller.” “We’re going to use all of that to fund loans and cash.”
BofA will release its profits on Tuesday, and the impact of rising rates will be evident in the company’s performance. It is
Source- CNET
that the business would record a profit per share of 83 cents, up 2.5% from 81 cents in the same period last year. That is growth, but not very much when you compare it to JPMorgan’s 39% earnings growth and Wells Fargo’s 74% earnings growth.
A Rally Without Banks?
However, Bank of America has an opportunity to turn things around. Najarian believes that the market’s attention will soon shift from “the two Bs”—bond losses and deposit betas, which describe how much interest rate fluctuations impact the cost of deposits—to “the two Cs,” or credit and capital.
If not offering concrete guidance, BofA may at least assuage investor concerns until then by projecting when net interest income, or NIL, on deposits will peak, according to Najarian. “A message that NII can trough in 1Q24…could buoy the stock, even if it’s too early to give numbers,” she says.
