- Bank of America's equities trading revenue beat analyst expectations, but its fixed income, currency, and commodities trading revenue missed estimates.
- The bank has had to rely more on its trading desks to generate revenue in the low interest rate environment. Those trading desks benefitted from volatility triggered by the COVID-19 pandemic, but that volatility has subsided recently.
- Earnings were boosted by a release of loan loss reserves as the risk of a wave of defaults triggered by the pandemic subsides.
|Bank of America Earnings Results|
|Metric||Beat/Miss/Match||Reported Value||Analysts' Prediction|
|Equities Trading Revenue||Beat||$1.6B||$1.4B|
|Fixed Income, Currency, and Commodities (FICC) Trading Revenue||Miss||$1.9B||$2.4B|
Source: Predictions based on analysts' consensus from Visible Alpha
Bank of America (BAC) Financial Results: Analysis
Bank of America Corporation (BAC) reported mixed results in its Q2 FY 2021 earnings report. Earnings per share (EPS) beat analyst expectations, rising 178% year over year (YOY). However, the bank's quarterly revenue missed estimates and was down almost 4% from the year-ago quarter. Equities trading revenue surpassed analyst forecasts, while fixed income, currency, and commodities (FICC) trading revenue fell below expectations. The company's shares fell nearly 2% in pre-market trading. Over the past year, Bank of America's shares have provided a total return of 68.5%, well above the S&P 500's total return of 38.5%.
BAC Trading Revenue
Bank of America generated nearly $3.6 billion in sales and trading revenue from its Global Markets division, a decline of more than 14% from the year-ago quarter. The drop in overall trading revenue was primarily driven by a 34% YOY plunge in FICC trading revenue. This was offset slightly by a 34% YOY rise in equities trading revenue.
With net interest income down due to extremely low interest rates, Bank of America has had to depend more on its trading desks to pull in revenue over the past year. The bank's net interest income fell 6% YOY, driven primarily by lower interest rates. But while the company's trading desks have benefited from heightened volatility triggered by the COVID-19 pandemic over the past year, that volatility has subsided in 2021, making it increasingly difficult to rake in windfall profits from major swings in market prices.
BAC Reserve Release
While Bank of America's revenue was hit by lower interest income and lower trading revenue, earnings received a $1.6 billion net benefit from a $2.2 billion release of reserves the bank uses to protect against losses on bad loans. The bank built up its loan loss reserves last year during the pandemic anticipating a wave of defaults. But strong fiscal support from the government helped to prevent those defaults from developing, and Bank of America, like other banks, is now beginning to release some of those reserves.
The bank's earnings were also helped by a one-time $2.0 billion tax benefit related to the revaluation of U.K. deferred tax assets.
Bank of America did not provide any forward guidance in its earnings press release. The bank's next earnings report (for Q3 FY 2021) is estimated to be released on Oct. 14, 2021.
Bank of America Corp. "Bank of America Reports Q2 Net Income of $9.2 Billion, EPS of $1.03," Page 2. Accessed July 14, 2021.
Bank of America Corp. "Bank of America Reports Q2 Net Income of $9.2 Billion, EPS of $1.03," Page 10. Accessed July 14, 2021.
Visible Alpha. "Financial Data." Accessed July 12, 2021.
TradingView. "Price Chart: BAC and S&P 500." Accessed July 13, 2021.
Bank of America Corp. "Bank of America Reports Q2 Net Income of $9.2 Billion, EPS of $1.03," Page 1. Accessed July 14, 2021.
Bank of America Corp. "Bank of America Announces 2021 Quarterly Financial Reporting Dates." Accessed July 13, 2021.