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The finance house is feeling the pain from the fixed income market along with its competitors, but cost-cutting and no hefty legal bills is what stands out for the bank.
In the final quarter of last year the firm revealed a 14% drop in profits, and the bulk of that was down to a 30% decline in revenue from fixed income, currencies, and commodities (FICC). For all the major banks this was a particularly large drop in dealing revenue, but when interest rates start to rise in the US the increased market volatility will help profitability.
The finance house has been reducing its market risk by cutting back the size of its trading operation, and the firm has made positive strides in terms of its cost-cutting. In the fourth-quarter of 2014, the bank saw expenses fall by 18%, and this was the lowest level since it acquired Merrill Lynch in 2009.
It would appear that Bank of America has exorcised the ghosts of the credit crisis, and last year’s legal costs fell by a whopping 83%. The Charlotte-based bank is setting itself apart from its counterparts by putting the mortgage-related fines behind it. The fact that Bank of America’s legal bill is much smaller than its competitors puts the company in very favourable light.
The consensus for its first-quarter numbers is for revenue of $9.18 billion and EPS of 78 cents. The fourth-quarter figures were mixed, with revenue coming in at $19.5 billion and EPS at 32 cents, while the market was anticipating £21 billion and 31 cents. The bank will report its full-year numbers in January 2016, and the market is expecting revenue of $86.7 billion and EPS of $1.39. These forecasts equate to a 1.6% increase in revenue and a 6% rise in EPS.
Equity analysts are bullish on Bank of America, with 23 buy ratings, 16 holds and three sells from 42 recommendations. The average target price is $18.38, which is 16% above the current price. Investment banks hold a moderately bullish outlook for rival Morgan Stanley, and out of the 35 ratings, 13 are buys, 21 are holds and one is a sell. The average target price is $39.50 which is 8.6% above the current price.
The number of short positions being taken out of Bank of America has dropped to its lowest level in four months, and the short interest has declined by 10% since the first-quarter numbers were revealed.
The share price has been in an upward trend since December 2011, and the 50-hour moving average is providing support at $15.71. If this mark is held $16 will be brought into play, and if that hurdle is cleared the $16.50-60 region will be insight. A puncturing of the 50-hour MA will bring support at $15.30 into focus, and below that traders will look to the $15 level.
Bank of America is available for extended hours trading.