On January 15th, Bank of America reported earnings that largely disappointed analyst estimates. The overall revenues for the bank total $19 Billion, which were down from the previous Q4 revenues by 13% (year-over-year). Analysts estimated close to $21 Billion in revenues, so the disappointment in reported revenues caused the stock to drop by over 5% on the day. Earnings were reported at $0.25 per share, lower than consensus estimates of $0.31.
Although earnings were weaker than normal, analysts were overly concerned with trading revenues, which are ultimately unpredictable and have the least impact on the overall bank. Due to this focus, the stock reacted negatively and plummeted for the aforementioned 5%. The majority of the underperformance in the trading platform relates back to the FICC division, which is highly correlated with current interest rates.
Settlement charges and continued litigation expense have hurt Bank of America as well as valuation adjustments that further decreased revenue by $1.2 billion. As BofA and other large banks in the industry pay fines and incur expenses from the Financial Crisis, it will begin to free future earnings and growth as the industry settles these matters. As a whole, several other banks reported weak earnings and I am not at all particularly worried about Bank of America. As of right now, analysts estimate total book value at $21.32 a share, representing a significant room for further upside in the position. Overall, the company's Net Interest Margin remained stable at 2.31% while Bank of America continues to focus on cost cutting measures within their non-interest expense segment. The company's main accomplishment has been the achievement of less than 5,000 banking centers, to minimize expenses and further profitability.
As the Federal Reserve continues to keep rates low, banking profitability will suffer. However, as we move further from the recession and the economy strengthens, there will be further incentive and indicators for interest rate hikes. Once this occurs, the banks will become increasingly profitable and recognize sizable gains in their stock price.