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Big Four Bank Earnings: What to Expect

Bank of America

Shares of Bank of America have gained more than 20% in the past year, but have underperformed the KBW Bank Index in 2013. BAC Total Return Price Chart BAC Total Return Price data by YCharts

Among the big themes for the second largest bank in the first quarter will be its efforts to reduce operating expenses. Bank of America has been restructuring its businesses over the last couple of years, shedding non-core assets and laying off employees, but those measures have been offset by high mortgage servicing expenses and elevated legal expenses.

The bank continues to deal with mortgage-related litigation. On Wednesday, it was slapped with a fresh lawsuit from Prudential Financial (PRU) alleging that the bank and its Merrill Lynch unit engaged in racketeering in connection with a mortgage-backed securities sale.

"While the company's earnings leverage is primarily centered on lower legacy mortgage-related costs and ongoing credit improvement, future earnings are not without risk given the challenging economic backdrop and past track record of generating sustainable EPS growth," Sterne Agee analyst Todd Hagerman wrote in a report Wednesday. "In particular, we remain concerned with BAC's potential litigation and outstanding mortgage repurchase risk. Litigation appears to have only accelerated over the last twelve months as private investors, correspondents and various government agencies/reps continue to pursue legal claims against the largest banks."

Hagerman believes the stock is fairly valued. The analyst expects the bank to report an earnings per share of 22 cents in the first quarter.

Analysts polled by Thomson Reuters expect the bank to earn 23 cents per share on revenues of $23.46 billion.


Bank of America is poised to return more capital this year. The bank passed the Federal Reserve's stress test and said it has the authorization to purchase upto $5 billion in stock and redeem $5.5 billion in preferred stock. It continues to maintain its dividend at a penny a share.

The stock currently trades at about 92% of its tangible book value of $13.15 and at 11.4 times expected 2013 earnings per share.

Bank of America reports April 17.

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