Key Takeaways

  • Analysts estimate EPS of $0.76 vs. $0.37 in Q2 FY 2020.
  • Equities trading revenue is expected to rise YOY.
  • Fixed income, currency, and commodities trading revenue is expected to fall YOY.
  • Companywide revenue is expected to fall amid low interest rates and lower market volatility.

Bank of America Corp.'s (BAC) financial performance rebounded in the first quarter of 2021 after a string of earnings and revenue declines amid the COVID-19 pandemic last year. Like other U.S. banks, Bank of America is now passing some of those profits directly to shareholders. It plans to sharply raise its quarterly dividend payments by 21% in the third quarter, reflecting the improving profit outlook for the bank. Bank of America announced the increase a few days after the Federal Reserve lifted limits on banks' dividend payments and share buybacks following annual bank stress tests.

Investors will be looking to see if the bank can maintain its momentum when it reports earnings on July 14, 2021 for Q2 FY 2021. Analysts are expecting mixed results from the earnings report. Earnings per share (EPS) are expected to rise rapidly, albeit slower than in the first quarter of the year. Revenue is expected to fall modestly, which would make for the sixth revenue decline in seven quarters following a slight rise in the first quarter.

Investors will also be focused on Bank of America's trading revenue, from both its equities trading desk and its fixed income, currency, and commodities (FICC) trading desk. The bank's trading revenue benefited from the heightened volatility in securities markets over much of the past year. However, that volatility has subsided this year, which will make it harder for the bank's traders to profit from major swings in market prices. But while analysts expect a sharp drop in the bank's FICC trading revenue, they expect its equities trading revenue to post a healthy increase.

Bank of America's shares have dramatically outperformed the broader market over the past year. But it wasn't until after the U.S. presidential election in early November 2020 and subsequent positive data regarding COVID-19 vaccine trials that the stock really took off. Shares of Bank of America have provided a total return of 71.8% over the past year, well above the S&P 500's 39.0% total return.

One Year Total Return for S&P 500 and Bank of America
Source: TradingView.

Bank of America Earnings History

The stock jumped after Bank of America reported earnings and revenue that beat analysts' estimates for Q1 FY 2021. It then moved lower before regaining its upward momentum the following week. EPS surged 116.1% compared to the year-ago quarter, ending the bank's streak of four consecutive quarters of year-over-year (YOY) EPS declines. Revenue barely budged, up just 0.2%, but it was the first revenue growth the bank had posted since Q3 FY 2019. The bank said that revenue continued to be challenged by low interest rates but that credit costs were improving and the economic recovery appeared to be accelerating.

The bank's stock slid lower after missing analysts' revenue expectations in Q4 FY 2020. It only regained its upward momentum weeks later. EPS in the fourth quarter fell 20.2%, marking the fourth consecutive quarter of YOY declines. Revenue also fell, down 10.1%, which marked the fifth consecutive quarter of declining revenue. Despite the declines, the bank was optimistic, noting that it was seeing higher consumer spending, stabilizing loan demand from commercial customers, as well as strong markets and investing activity, all signs of a continued economic recovery.

Analysts expect mixed results in Q2 FY 2021. EPS is expected to rise 103.4%, which would be the second fastest pace of growth in the past ten quarters. Revenue, however, is expected to fall 2.6%, which would be the sixth decline in the past seven quarters. For full-year FY 2021, analysts are currently forecasting EPS to rise 63.4%, which would be the fastest pace of growth since FY 2018. Revenue is expected to grow a meager 2.3%, but it would be the fastest rise since FY 2018.

Bank of America Key Stats
  Q2 2021 (FY) Q2 2020 (FY) Q2 2019 (FY)
Earnings Per Share ($) 0.76  0.37 0.74
Revenue ($B) 21.7 22.3 23.1
Equities Trading Revenue ($B) 1.4 1.2 1.1
Fixed Income, Currency, and Commodities (FICC) Trading Revenue ($B) 2.4 2.9 2.1

Source: Visible Alpha

The Key Metric

As mentioned above, investors also will be watching Bank of America's equities trading revenue and its FICC trading revenue. With net interest income down due to extremely low interest rates, the bank has had to depend more on its trading desks to pull in revenue over the past year. Those trading desks benefited from heightened volatility triggered by the pandemic. However, volatility has subsided this year, making it increasingly difficult for traders to rake in windfall profits from major price swings in securities, currencies, and commodities markets.

Bank of America's annual equities trading revenue rose 20.7% in FY 2020, the fastest pace in at least the past four years. Growth was especially strong in the first and final quarter of the year, rising 43.0% and 29.8% in Q1 and Q4, respectively. After slowing to a pace of 8.6% in Q1 FY 2021, analysts expect the bank's equities trading revenue to rise 13.0% in Q2 FY 2021. For full-year FY 2021, analysts are currently forecasting growth of 4.8%.

Bank of America's annual FICC trading revenue rose 17.2% in FY 2020, marking the first rise in at least the past four years. All of that growth came in the first two quarters of the year, with FICC trading revenue rising 29.1% in Q1 and 40.2% in Q2 before falling 1.8% in Q3 and 3.7% in Q4. Growth picked up again in Q1 FY 2021 with FICC trading revenue rising 10.1%. However, analysts are expecting it to fall 18.0% in Q2 FY 2021, which would be the fastest decline since the third quarter of FY 2017. For full-year FY 2021, analysts are currently estimating FICC trading revenue to fall 4.2%, which would be the first decline since FY 2019.