Bank of America (NYSE: BAC) stock is trading higher this morning after it posted mixed earnings for the second quarter of 2022. While its revenues were higher than what analysts were expecting, its profits missed estimates.
Goldman Sachs, which also released its earnings today, topped analysts’ estimates for both the topline and bottomline. Citigroup had also posted better than expected revenues and profits last week and the stock gained in double digits after the earnings release.
JPMorgan has been the worst performer this earnings season and missed both revenue and profit estimates. It also sounded quite bearish on the economy. The bank’s CEO Jamie Dimon had previously warned of an economic “hurricane.” However, Bank of America sounded quite optimistic. It said, “Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels.”
It added, “As we enter the second half of the year, we believe we are well-positioned to deliver for our shareholders while continuing to invest in our people, businesses and communities.” The commentary is in stark contrast to that of JPMorgan which has also suspended its stock buyback program.
Bank of America Stock Falls on Mixed Earnings
Bank of America reported revenues of $22.79 billion in the second quarter of 2022 which were slightly higher than the $22.67 billion that analysts were expecting. While the revenues increased as compared to the corresponding quarter last year, they were lower than the first quarter. Like fellow US banks, Bank of America reported a steep rise in net interest income, and the metric rose 22% to $12.4 billion. Amid the rising interest rates, US banks are reporting an increase in their interest income.
However, the noninterest income stream has been weak amid the economic turmoil. Bank of America’s investment banking fees plunged 47% to $1.1 billion and was below analysts’ estimates. The US IPO market has dried up amid the turmoil and fellow banks have also reported lower investment banking revenues.
However, Bank of America’s fixed income trading revenues rose to $2.3 billion, a YoY rise of 19%. Its revenues from stock trading also rose 2% YoY. Morgan Stanley, which owns E-trade, also reported an increase in active users in the quarter.
Bank of America stock is down around 27% this year and is underperforming the markets as well as banking peers. However, many analysts as well as Warren Buffett are bullish on the bank.
Warren Buffett is bullish on BAC stock, Analysts Recommend a Buy
Warren Buffett’s Berkshire Hathaway is the largest stockholder of Bank of America. The conglomerate bought more Bank of America shares last year to take the stake to 12.5%. while Buffett has always been overweight on banks, he deliberately kept the stake below 10% to escape regulatory scrutiny. Also, while Buffett exited JPMorgan, Goldman Sachs, and Wells Fargo, he invested more money in BAC last year.
US banks have been setting aside money for credit loss reserves amid rising inflation and recession fears. BAC set aside $523 million for credit losses during the quarter. Amid rising input costs, several US companies have been rising prices. Tesla’s CEO Elon Musk has however said that the company would lower car prices once inflation drops.
Bank of America sounded reasonably bullish on its outlook. The company’s CFO Alastair Borthwick said, “We believe our earnings generation over the next 18 months will provide ample capital to support growth, pay dividends, buy back shares and continue to invest in our people, platforms and communities as we grow into new regulatory capital level requirements.”
The bank is among the high dividend-paying stocks with a yield of 2.6%. Citigroup’s yield is even higher at 4.1%. BAC stock opened in the green today after trading lower in pre-market.
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