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Bank of America Earnings: Investment Banking and Asset Management Keep Fees Strong, but Charge-Offs Rise

Lower short-term interest rates should assuage concerns about the bank’s unrealized losses on bond holdings.

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Bank of America Corp

Key Morningstar Metrics for Bank of America

What We Thought of Bank of America’s Earnings

Bank of America BAC reported first-quarter adjusted earnings per share of $0.83, higher than the FactSet consensus estimate of $0.76. Bank results in the quarter were impacted by an FDIC special assessment charge of $0.7 billion for uninsured deposits of certain failed banks, which reduced earnings by $0.07 per share. After adjusting for the charge, the numbers resulted in a return on tangible equity of 13.8%. We do not plan to materially change our $38 fair value estimate for Bank of America as we fully incorporate the results.

The bank’s shares have recently pared back after rallying by around 50% from their October 2023 lows, as the market has lost its enthusiasm around the Federal Reserve cutting interest rates in 2024 due to hotter-than-expected inflation readings. The consensus prediction has gone from the year seeing six rate cuts to there being two or three. We agree that a higher-for-longer interest rate scenario is bad for Bank of America in the short term, but the downside should be limited in the long term. If the market overreacts to expectations for interest rates over the short term, investors should watch this stock.

Investors have been penalizing Bank of America in the past year for its exposure to longer-duration securities while interest rates were rising. These assets weighed on the company’s net interest income, as they were stuck on the book while earning lower yields. Lower short-term interest rates should assuage concerns about the bank’s long-duration exposure and unrealized losses. We think the bank’s balance sheet is relatively well-positioned for interest rate cuts, and NII should hold up reasonably well. The stock is trading around 10% below our fair value estimate, and we think it could outperform other money-center banks in the next few quarters as interest rates lower.

Bank of America Stock vs. Morningstar Fair Value Estimate

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Suryansh Sharma

Equity Analyst
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Suryansh Sharma is an equity analyst, financial services for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Before joining the equity research team, Sharma worked with Morningstar's licensed data support team calibrating and translating complex financial products and proprietary investment platforms for Morningstar's institutional clients.

Sharma holds a bachelor's degree in engineering from the National Institute of Technology, India and a master's degree in engineering management from Washington University in St Louis. He is also a Level II candidate in the Chartered Financial Analyst® program.

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