Bank of America is scheduled to release its quarterly earnings report tomorrow, and with its report coming on the heels of similar announcements from many of its banking peers, B of A needs to demonstrate its ability to keep up with its rivals. As the best-performing stock in the Dow Jones Industrials last year, B of A has already given investors high expectations for its future.
In many ways, though, B of A has had an easy environment in which to recover. With rising interest rates looking to hamper its mortgage business, the bank may not have as easy a time growing its earnings in the future. Let's take an early look at what's been happening with Bank of America over the past quarter and what we're likely to see in its quarterly report.
Stats on Bank of America
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Which way will Bank of America earnings go this quarter?
In recent months, analysts have lost some enthusiasm for Bank of America's earnings prospects. They've kept their June-quarter estimates constant, but they've reduced their full-year estimates by $0.04 per share. Nevertheless, the stock has continued to advance, rising 13% since early April.
One reason shareholders think B of A is worth buying is that other banks have reported fairly strong second-quarter results. Last week, JPMorgan and Wells Fargo started off bank earnings season with a bang. JPMorgan saw a 31% rise in net income over the previous year on a 14% rise in revenue. Wells managed to boost its net income by 19% despite seeing a fairly large unrealized loss on its securities portfolio and a drop in quarterly mortgage originations from the previous year, as it reduced its loan-loss provisions to reflect better asset quality. And yesterday, Citigroup weighed in with a whopping 42% jump in net income on 11% higher revenue, with rising deposits and loans showing that the bank is moving forward successfully with its restructuring plans.
But B of A faces some unique challenges. In its first-quarter report, Bank of America missed its earnings estimates, as the company's consumer real-estate division showed worse losses than it did in the year-ago quarter. Moreover, with 91% of its mortgage business having come from refinancing, the recent rise in interest rates could spell big trouble for B of A's mortgage-related income this quarter.
Moreover, legal problems for B of A continue to arise. Last month, B of A drew attention for a lawsuit alleging that the bank deliberately obstructed customers' attempts to modify their mortgage loans under the federal government's Home Affordable Modification Program. Although other banks have allegedly used similar tactics, and although B of A says the employees who blew the whistle on the bank's behavior gave testimony that was "rife with factual inaccuracies," the episode only emphasizes the general public's ill will toward the bank.
In Bank of America's earnings report, be sure to look at the unrealized losses in the bank's investment securities portfolio resulting from the rise in interest rates during the quarter. With rates having risen from such low levels, it's unlikely that the bank will earn those losses back, and that could pressure earnings for a while to come.
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The article Will Earnings Push Bank of America to Multiyear Highs? originally appeared on Fool.com.
Fool contributor Dan Caplinger owns warrants on Bank of America, Wells Fargo, and JPMorgan Chase. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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