A bleak Q3 awaits Bank of America (BAC) amid low interest rates, trade dispute

The general mood is not very encouraging ahead of the earnings season for banks, which is about to start, and the primary concern is the Federal Reserve’s recent rate cuts. Though it will be partially offset by the reduction in interests on deposits and the healthy securities portfolios of major banks, their performance will still be affected by slow loan growth and trade-war related uncertainties.

Related: Wells Fargo Q2 results beat estimates

Bank of America (NYSE: BAC) will be publishing results for the September-quarter on October 16 at 6:45 am ET. Market watchers are of the view that overall performance will be weaker than in the year-ago period. They expect earnings to fall 23% to $0.51 per share on revenues of $22.8 billion, which represents a 1% decline from last year.

Dismal Outlook

The Charlotte, North Carolina-based financial services giant, in which Warren Buffett’s Berkshire Hathaway holds a major stake, is not immune to the Fed’s recent policy shift and the emerging signs of an economic slowdown. A potential weakness in the bank’s loan portfolio and pressure on margins will drag down profitability.

If the recessionary trends in the economy persist, it would affect long-term performance. The fact that the third-quarter earnings estimate was revised down several times in recent weeks underscores the gravity of the ongoing challenges. Meanwhile, the strain on profitability will be partly offset by the relatively stable commercial banking segment, aided by the thriving equity market.

Q2 Performance

In the second quarter, the bank’s earnings surged 17% to $0.74 per share as revenues moved up 2% to about $23 billion, mainly reflecting the strength of the Consumer Banking business. Higher interest rates and solid loan growth lifted net interest income. While earnings topped the market’s expectations, revenues missed.

Busy Week

Citigroup (C) will be unveiling its third-quarter numbers Tuesday before the opening bell, after recording double-digit profit-growth for the previous quarter. Among others, Wells Fargo (WFC) is set to publish September-quarter results on Tuesday early morning.

Also see: Bank of America Q1 2019 Earnings Call Transcript

Bank of America’s stock is considered to be reasonably priced, despite the recent gains. It has the potential to gain further if the market conditions change for the better. The stock has been volatile in recent months and traded below the $30-mark ahead of the quarterly report. It gained about 13% since the beginning of 2019.

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