The second largest U.S. bank performed better than expected, led by investment banking revenue.

Banks have performed better than anticipated so far in the third quarter, and that includes Bank of America (NYSE:BAC).

The nation’s second largest bank topped revenue estimates in the quarter, bringing in $25.3 billion in income. That was up less slightly from $25.2 billion in the same quarter a year ago. It also beat consensus estimates of $25.2 billion.

Net income fell 11% year over year to $6.9 billion, or 81 cents per share, but it was a bit better than the 76 cents per share median estimates.

It wasn’t blowout quarter by any stretch, but the stock was moving about 2% higher on the day, trading at around $42.75 per share. Should investors view Bank of America stock as a buy after Q3 earnings?

Interest income down, investment banking up

Typically, rising interest rates are good for banks, because the higher the rates, the more revenue the banks can generate in interest income.

But this cycle has been different, because rates increased so high, so fast, that banks had to rapidly increase their deposit rates too, particularly after the 2023 banking crisis. The banking crisis caused several banks to go under, in part, due to runs on deposits. Thus, to avoid losing deposits, banks had to raise deposit rates, perhaps higher than they wanted to. This, in turn, has eaten into interest income, and profits.

We saw that again in Q3 as Bank of America experienced a 3% decline in net interest income (NII) to $14 billion. As NII represents about 55% of Bank of America’s total revenue, that’s a significant hit.

However, Bank of America has been able to overcome that in other areas through its diversity of revenue streams. Its Global Markets business, which encompasses institutional trading, saw revenue climb 14% to $5.6 billion. Further, revenue jumped 8% to $5.8 billion in its wealth and investment management arm, which includes the Merrill Lynch brokerage business. These two businesses lines were boosted by the bull market, which has raised asset levels and inflows.

And while the Global Banking segment saw revenue drop 6% to $5.8 billion, investment banking revenue soared. Bank of America generated $1.4 billion in investment banking fees, ranking third among all banks in the quarter. That represents an 18% increase over Q3 of 2023. However, the gains in investment banking were offset by revenue declines in commercial banking, due, in part, to a drop in NII.

“We believe our diverse business is a source of strength, helping us deepen existing client relationships and develop new ones, over time,” said Bank of America CFO Alastair Borthwick.

Should you buy Bank of America stock?

Bank of America has had a good bounce back year, with its stock price up about 26% year-to-date. Investors who jumped on the bank stock at the end of 2023 when its P/E ratio fell below 10 were rewarded with solid returns.

However, is Bank of America still a good buy at this slightly higher valuation, trading at almost 15 times earnings?

I think it still has some challenging times ahead. While interest rates are falling, it may take awhile before it can right size deposit rates and maximize its NII. However, lower rates should lead to more borrowing, so the increased loan activity will help.

The bank also faces the prospect of a slower growing economy, which could lead to weakening credit quality and higher provisions for credit losses. In addition, market growth is expected to be muted, which could impact wealth and investment management. However, a better market for investment banking should offset any potential losses elsewhere.

I certainly don’t think Bank of America is a bad investment right now. Its valuation is still decent, and the stock could see limited growth. But don’t expect the type of returns it has seen this year.

Share: Feed news

VALUEWALK LLC is not a registered or licensed investment advisor in any jurisdiction. Nothing on this website or related properties should be considered personalized investments advice. Any investments recommended here in should be made only after consulting with your personal investment advisor and only after performing your own research and due diligence, including reviewing the prospectus or financial statements of the issuer of any security. VALUEWALK LLC, its managers, its employees, affiliates and assigns (collectively “The Company”) do not make any guarantee or warranty about the advice provided on this website or what is otherwise advertised above. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. The Company disclaims any liability in the event any information, commentary, analysis, opinions, advice and/or recommendations provided herein prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Recommended content


Recommended content

Editors’ Picks

EUR/USD remains pressured below 1.0800, US data eyed

EUR/USD remains pressured below 1.0800, US data eyed

EUR/USD is trading under pressure below 1.0800 in European trading on Friday. A renewed US Dollar uptick and a cautious mood weigh on the pair, as traders digest the Trump win and the Fed rate cut ahead of the US preliminary Consumer Sentiment data for November.

EUR/USD News
GBP/USD holds lower ground near 1.2950 amid tepid risk sentiment

GBP/USD holds lower ground near 1.2950 amid tepid risk sentiment

GBP/USD edges lower toward 1.2950 in the European session on Friday. The emergence of dip-buying in the US Dollar and a tepid risk tone undermine the pair. The BoE’s cautious rate cut could check the pair's downside as traders look to BoE-speak, US data for fresh incentives. 

GBP/USD News
Gold price seems vulnerable while below $2,700 amid stronger USD, positive risk tone

Gold price seems vulnerable while below $2,700 amid stronger USD, positive risk tone

Gold price drops to the $2,680 area during the first half of the European session on Friday and is pressured by a combination of factors. Hopes that Trump's policies would spur economic growth and inflation, to a larger extent, overshadow the Fed's dovish outlook, which, in turn, helps revive the USD demand.

Gold News
Bitcoin touches new all-time high near $77,000 following Fed rate cut

Bitcoin touches new all-time high near $77,000 following Fed rate cut

Bitcoin price rallied and reached a new all-time high of $76,849 following the US Federal Reserve’s 25 basis point rate cut. Ethereum and Ripple followed suit and closed above their key resistance levels, hinting at a possible rally ahead.

Read more
Outlook for the markets under Trump 2.0

Outlook for the markets under Trump 2.0

On November 5, the United States held presidential elections. Republican and former president Donald Trump won the elections surprisingly clearly. The Electoral College, which in fact elects the president, will meet on December 17, while the inauguration is scheduled for January 20, 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures