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Bank Of America Corp 4Q17 Earnings Preview: Tax Overhaul, NIM To Drive Stock

Bank of America Corp (NYSE:BAC) is scheduled to release its next earnings report on Wednesday before opening bell. Consensus is expecting Bank of America 4Q17 earnings to come in at 45 cents per share on $21.5 billion in revenue. In the same quarter a year ago, the firm reported 40 cents per share in earnings on $20 billion in revenue.

Bank Of America 4q17 earnings
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What to expect on the Bank of America 4Q17 earnings call

In an earnings preview note covering major U.S. banks, Deutsche Bank analyst Matt O-Connor said that he expects the Bank of America 4Q17 earnings release to be accompanied by management commentary on taxes and net interest margins. He expects both to remain main drivers of Bank of America’s earnings and stock. He also said that the bank expects a $100 million securities gain and a $50 million benefit from loan loss reserves. He also looks for a $250 million hit from retirement-eligible incentives expenses.

He notes that management never provided any specific outlook for Bank of America 4Q17 earnings, but he added that assuming that rates do not change, the firm’s net interest income to depend on its loan and deposit growth and pricing.

Bank Of America 4Q17 earnings expected to include tax-related charges

Bank stocks have been soaring for the last several months, but especially now in 2018 as President Trump’s tax reform bill goes into effect. Most, if not all major U.S. banks are expected to report large one-time charges in connection with the tax overhaul. Some analysts are expecting these charges to significantly muddy the banks’ actual fundamentals, meaning that a deeper dive than usual will be needed to understand their core results.

Bank of America management have already said they expect to take a $3 billion charge, including $2 billion for deferred tax assets and $1 billion for cash repatriation. Other areas of interest in the fourth-quarter earnings calls for the nation’s biggest banks include net interest margins and discussions around if or when loan growth and trading revenues will finally pick up.

Loan growth and trading revenues expected to remain weak

Bank stocks have been ticking higher for months on the promise that the improving economy will drive improving results, but so far, most firms have yet to deliver any substantial growth in key areas riding on the economy. Loan growth in particular has continued to lag, and UBS analysts are predicting only an increase of 0.1% in the Bank of America 4Q17 earnings release. They’re also projecting net interest margins of 2.37% for the firm, which is roughly flat with the third quarter, even though it’s an increase of almost 20 basis points on a year-over-year basis.

Barclays analysts are projecting a 15% to 20% year-over-year decline in trading revenues for Bank of America as volatility remained low during the fourth quarter. The firm is also up against a difficult year-over-year comparison as volatility spiked in the year-ago quarter due to the upset in the presidential election.

JPMorgan estimated a 1% increase in investment banking fees for Bank of America, driven by strength in the equity capital markets, although mergers & acquisitions were down during the quarter.