Financial behemoth Bank of America (BAC, Financial) is slated to announce its first-quarter earnings of the fiscal year 2015 on April 15 before the opening bell. In the past quarter, though the trading income of the bank was badly hit, its adjusted earnings were able to surpass the Street expectations. So, it remains to be seen if such an event could get repeated on this Wednesday morning when the Q1 results will be declared from the management corner. Let’s quickly take a sneak peek into what analysts are speculating regarding Bank of America’s expected top and bottom lines for the quarter, and whether there are any specific factors that could play a role in improving the earnings of the bank for the quarter.
Analysts’ expectations are strongly backed by facts
Analysts are expecting the second largest bank in the U.S., Bank of America, to return into profit in the first quarter of the fiscal year 2015 with earnings at around $0.29 a share, compared to the $0.05 per share loss witnessed in the same quarter a year ago. In fact, in the past year’s first quarter Bank of America had to take a net loss of $276 million, as it paid billions to settle lawsuits involving mortgage-backed securities. But hopefully no legal expenses were accrued to such an extent in the first quarter of 2015. And hence the good news of returning to profit mode is being hugely predicted across the Street.
It is being anticipated that the cost-saving initiatives will continue to bear fruit for the company. This has already been noticed in the fourth quarter of the previous fiscal year when earnings surpassed analysts’ estimate in presence of strong headwinds such as lower mortgage banking income and rise in credit loss provision, majorly being driven by a well-controlled expense line which partially did offset the impact of all such negative forces.
It is to be noted that the company has highlighted that it anticipates annual retirement eligible incentive costs of nearly $1 billion during the quarter. Based on such fundamental information, analysts are hoping that operating expenses will trend lower in the quarter.
However, the pressure on the top line will remain as interest rates tend to remain low even during this quarter. Management has also estimated a fall in net interest income by about $200 million due to two less interest accrual days in the first quarter. Hence, the revenue is being forecasted to be around $21.5 billion for the quarter by the analysts, 5% down from $22.7 billion reported a year ago.
Bank fundamentals remain strong amid lower interest rates
Bank of America, irrespective of any prevailing headwind, continues to focus on its core business units. A rise in refinancing activities linked to lower mortgage rates might aid in improving the mortgage banking income for the quarter. Also, the investment banking division stands to gain from the M&A and IPO activities during the quarter. Hence, the fee income will possibly increase to some extent during the first quarter of the current fiscal year.
In the past quarter, the company had disappointed its investors by posting 11% dip in its profits largely affected by the low revenue from fixed-income trading unit. In fact, in the fourth quarter of the past year, revenue for the fixed-income trading division fell over 20% to $1.46 billion, driven by weakness in credit and mortgage trading. But in the first quarter of the new fiscal year 2015, the strong revenue flow from such divisions will possibly have a positive impact on the bottom line of the prestigious bank.
The commercial loan division will also likely show some improvement in loan disbursement during the quarter which could aid in pulling up the bank’s revenue, though the net interest income remains a headwind to face due to low interest rates prevailing in the U.S.
Final word
Analysts are of the opinion that the Federal Reserve is likely to raise the U.S. interest rates in the second quarter that would aid in improving the net interest margins of banking behemoths such as Bank of America, going forward. As on date, the better performance of the mortgage trading division and investment banking division, along with negligible legal fees accrued during the quarter would aid in improving the bottom line to a considerable extent. Let’s stay tuned till the bank management holds the first quarter earnings call this Wednesday when the numbers will possibly portray the financial strength of the banking major.
