Earnings preview: Bank of America to benefit from trading in Q4

Bank of America (BAC) is set to report its earnings for the fourth quarter on Wednesday before the bell. Investors await trading revenue numbers, which is predicted to be positively impacted by substantial volatility. The banking sector has been undergoing a challenging phase with interest rate hikes and tariff-related headwinds pressurizing the banks.

In the fourth quarter, it is expected that the long-term trend of positive earnings performance would continue with a higher probability of exceeding the forecast. The company’s client activity has risen in the quarter due to substantial volatility resulting from Brexit-related uncertainty, global economic slowdown fears, further escalation of US-China trade battle, yield curve changes, and interest rate hikes stance.

The company’s trading revenues are expected to be supported by an increase in equity trading activities. During December 2018, the bank’s chief Brian Moynihan expected capital markets revenues to rise year-over-year in the fourth quarter and the markets witnessed a substantial rise in volatility.

Analysts, on average, expect the leading mortgage lender to post earnings of $0.63 per share on revenue of $22.45 billion for the fourth quarter. In comparison, during the previous year quarter, the company posted a profit of $0.48 per share on revenue of $21.59 billion. Majority of the analysts recommended a “buy” rating on the stock while expecting the stock to reach $32 in the next 52 weeks.

Bank of America tops Q3 estimates with solid results

In the third quarter, Bank of America posted a 32% jump in earnings helped by strong operating leverage, asset quality, and tax reform benefits. Net interest income rose 6% on higher interest rates as well as loan and deposit growth. Net charge-offs showed growth on credit card portfolio seasoning and loan growth while non-performing assets declined due to improvements in the consumer and commercial portfolios.

Among peers, Citigroup (C) posted a rise in earnings for the fourth quarter helped by cost-cutting initiatives. Revenue declined 2% due to a dip in the fixed income securities business. The company cited market-sensitive businesses, specifically Fixed Income to the volatile fourth-quarter results. Another peer JPMorgan (JPM) is scheduled to report earnings on Tuesday before the bell.

Shares of Bank of America opened lower on Monday but changed course to the green territory in the early trade. The stock has fallen over 15% in the past year and over 7% in the past three months.