Will increased capital buffer hurt Bank of America outcomes?

July 18, 2022

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Bank of America is scheduled to launch earnings earlier than the market open on Monday, July 18.
Wall Street consensus is betting on $0.75 in GAAP EPS.
BAC has been buying and selling inside a descending wedge construction since February.

Bank of America (BAC) inventory is buoyant in Monday’s premarket as traders wager on a second quarter earnings beat, which is anticipated to be launched earlier than the market opens. BAC shares are advancing 1.3% to $32.68 on the time of writing.

Wall Street expects GAAP earnings per share (EPS) of $0.75 on income of $22.79 billion for the quarter.

Bank of America Earnings Preview: Bank stress take a look at might have an effect on steerage

In late June each JPMorgan and Bank of America – the US’s two largest banks – had been issued poor outcomes for the Federal Reserve’s banking stress take a look at. Because of this, Bank of America will elevate its capital buffer by one share level to three.5%. This might have an effect on earnings however will extra seemingly have an effect on leads to the second half of the yr. Investors can be listening to the earnings name to know how a lot this modification will have an effect on steerage for the remaining of the yr. Bank of America has already mentioned it is going to elevate its quarterly dividend by one penny, however the market will take heed to see how elevating the capital buffer impacts the inventory buyback program.

JPMorgan’s outcomes had been tepid final week in keeping with CEO Jamie Dimon’s dire warning {that a} hurricane was on its approach for the US financial system. At that very same convention, Bank of America’s longtime CEO Brian Moynihan couldn’t have been extra reverse in his outlook. “We’re in North Carolina,” Moynihan mentioned. “You’ve got hurricanes that come every year.” Moynihan pointed to the energy of the employment price and rising client spending to clarify why didn’t see an imminent recession on the horizon.

Baird Equity Research put out a financial institution trade incomes word forward of this week’s deluge of financial institution earnings experiences that gave BAC a Neutral score hooked up to a nonetheless bullish worth goal of $42.

“Weakness in investment banking is offset by loan growth, higher NIM, and increased trading fees,” learn the word from Baird. “During a mid-June investor conference, management noted that consumer spending was up ~9% Y/Y on an MTD-basis as real spending improved across all categories (ex-gasoline), contributing to solid credit card growth through Q222. Management now expects high single digit loan growth for FY2022 (vs. mid-single digit loan growth previously) driven by recovering commercial utilization rates and lower consumer payment rates.”

Bank of America inventory already rose 7% on Friday after Wells Fargo (WFC) reported web curiosity earnings advancing 11%. Like Wells Fargo, Bank of America is a significant company lender, and the market was already anticipating that stable outcomes await BAC.

Bank of America’s most up-to-date bank card information from June confirmed sturdy client spending that ought to buffer Q2 outcomes. Management mentioned June bank card spending was up 16% YoY, and that the deliquency price remained flat with May at 0.84%, down from 0.97% one yr in the past.

Bank of America Stock Forecast: Narrow vary permits promise of breakout

Bank of America inventory has been buying and selling inside a descending wedge construction since at the very least February. At the precipice of Q2 earnings, BAC now has the highest line and backside line in fairly shut quarters. These leaves only a $3 window between the highest line at $32.25 and the underside line simply above $29. A breakout on account of outcomes is extra seemingly than ever. If BAC inventory breaks above the highest line, a stable wager is that bulls will push shares as much as the latest swing excessive at $37.50.

One constructive signal on the chart is that the Accumulation/Distribution line has been heading greater since mid-June. The indicator must eclipse -9.6 billion although to actually present promise.

BAC each day chart

BAC’s weekly chart under exhibits how far shares have fallen since producing a double-top formation at $50 again in January and February. Before BAC makes it anyplace near $50 (on account of recession fears it’s unlikely BAC makes it again to $50 earlier than 2023), additional resistance sits at $44.25. The 15-week (much like the 100-day transferring common) and 30-week (much like the 200-day transferring common) MAs present that there must be resistance close to $35 and $40 as effectively.