To The Moon

$Bank of America(BAC)$ is expected to report its third quarter 2024 earnings before market open on 15 October 2024. Market is mostly upbeat toward Bank of America (BAC) ahead of the financial giant's third-quarter earnings report.

But there is a concern on BAC's traditional consumer banking areas (credit card, auto, mortgage and personal loans) are slowing down, as seen in the first half of 2024, there is no significant growth in the deposit and investments.

Earnings per share is expected to come in at $0.76, down 14.4% year-over-year (YoY), on revenue of $25.3 billion (+0.4% YoY).

Why Net interest income (NII) Matter

Net interest income (NII) is a financial performance measure that reflects the difference between the revenue generated from interest-bearing assets and the expenses associated with paying on its interest-bearing liabilities. It's the lifeblood that sustains banks, credit unions, and other lenders, determining their ability to generate revenue, extend credit, and weather economic storms.

A typical bank's assets include all personal and commercial loans, mortgages, and securities. The liabilities are interest-bearing customer deposits. The excess revenue generated from the interest earned on assets over the interest paid on deposits is NII.

The NII of some banks is more sensitive to changes in interest rates than others. The main changes derive from a country's central bank (e.g., the U.S. Federal Reserve), which sets its own overnight lending rates and bank use to determine the rates they offer. These changes can result from the type of assets and liabilities that are held, as well as whether the assets and liabilities have fixed or variable rates. Banks with variable-rate assets and liabilities will be more sensitive to changes in interest rates than those with fixed-rate holdings.

As we can see how $JPMorgan Chase(JPM)$ NII result has helped its earnings move, JPMorgan Chase posted third-quarter results that topped estimates for profit and revenue as the company generated more interest income than expected. JPMorgan said profit fell 2% from a year earlier to $12.9 billion, while revenue climbed 6% to $43.32 billion.

The biggest American bank has thrived in a rising rate environment, posting record net income figures since the Fed started hiking rates in 2022.

We saw JPM gain more than 4% at Friday (11 Oct) close.

BAC NII Expected To Dip But Will See A Surprise

As higher deposit costs more than offset higher asset yields, higher NII related to Global Markets (GM) activity, and modest loan growth.

Net interest yield expected to fall as the rise in earning assets yield to 5.15% (+45bps YoY) was outpaced by the rise in interest-bearing liabilities yield to 4.20% (+65bps YoY).

Net charge-offs increase was driven by credit card and commercial real estate offices. Investment banking fees lifted revenue. The growth was led by debt capital markets fees, mostly in leveraged finance and investment grade. BAC’s investment banking fees rose 29% YoY to US$1.6bn.

Higher market levels benefit fees. Asset management fee (+14% YoY) benefited from higher market levels and strong AUM flows, with total client balances growing 10% YoY to US$4tn, driven by higher market valuations and positive net client flows of US$11bn for the quarter (2Q23: US$14b).

BAC MACD And KDJ Expected To Continue Its Upside Movement

If we looked at how BAC have been trading using technical analysis, we are seeing BAC making an upward trend, and we also saw similar trend from KDJ, and it looks like this upward trend movement is here to stay.

I am expecting BAC NII to benefit from the previous rising rates and we could see a surprise earnings from BAC NII.

Summary

I am expecting BAC to benefit from the rising rates and this should be reflected in its NII earnings in the upcoming results, but the outlook guidance might not be so positive as BAC Net charge-offs increase was driven by credit card and commercial real estate offices.

Appreciate if you could share your thoughts in the comment section whether you think BAC would provide an earnings surprise on the back of the NII increase?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.