Bank of America Corporation (NYSE:BAC)’s shares closed 5% lower on September 14th after the firm’s CEO discussed its investment banking revenue at the Barclays global financial services conference. CEO Brian Moynihan outlined that the revenue could range between $1.6 billion and $1.8 billion, to mark a $300 million drop at the midpoint from the year-ago figure of $2 billion. Cramer discussed the announcement and outlined that not only had it been ignored due to the coverage regarding AI slowdown, but that the reaction appeared to be excessive as well, as per management:
“One of the things that happened yesterday, that kind of was obscured about all the trading worry about OpenAI, were the banks. Bank of America spoke at a conference, I think Bank of America feels, a little aggrieved about the coverage. The reason I say that is because the stock was down very large, down 5% on what could considered to be only a 1.5% EPS cut. I don’t even know if they’re going to have to do an EPS cut. The problem was, Brian did say, that this was going to be a very good trading period. Meaning that they expected a flat trading period. Now there were some people who were on the upside from that. But it was kind of interpreted as being a down trading. A down quarter on trading. It was a prediction, it wouldn’t be so bad that business were flat, when we consider the fact that what was the problem was in Asia, Bank of America Asia, not here. They’re still saying everything is in place. Should it be down 5%? Maybe it should be down 3%, maybe 2%. But I do think they’re going to be able to pull it out.”
The CEO’s remarks came after Bank of America Corporation had released its second quarter earnings and third quarter guide in mid-July. While the firm did not provide a Q3 investment banking revenue guide, the second quarter’s figure of $2.1 billion had marked a strong 50% annual growth. During Bank of America Corporation’s Q2 earnings call, CFO Alastair Borthwick did remark that the “second quarter last year was a slower quarter for investment banking for the entire industry.”
He added that the $2.1 billion in Q2 revenue, which marked 50% annual growth, was, “if you kind of sustain that relative to what we did in third quarter of last year, which was $2 billion or so, you just don’t get the same kind of uplift in the second half. So that’s what we’ve got our minds on.”
On a broader level, Bank of America Corporation’s narrative, like that of other banks, is driven by its net interest income. On this front, NII grew by 9% in Q2 on the back of a 19.6% growth in revenue. Crucially, Bank of America Corporation’s net income growth outpaced revenue growth and sat at 27%. Not to mention, the bank exited the quarter with $4.9 trillion in Global Wealth and Investment Management balances, which provide it with diversification from the traditional banking model.
Looking at the valuation, Bank of America Corporation trades at a forward P/E ratio of 11.43, which is roughly in line with its peers Citigroup and Wells Fargo. Short interest as a float is negligible for the three. On the hedge fund front, 111 funds tracked by Insider Monkey had held a stake in Bank of America Corporation in Q2, which was higher than the 106 in Q1. A notable addition was Azora Capital‘s $238 million stake, while Marshall Wace LLP‘s $711 million stake marked a 582% jump.
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