CHARLOTTE, N.C. (
) -- As
Bank of America's
new CEO Brian Moynihan prepares to participate in his first conference call on the company's quarterly results Wednesday, Wall Street is waiting to hear how far the company has come in cleaning up its balance sheet and integrating large acquisitions.
Moynihan will be speaking to a tough crowd.
report on Friday failed to woo investors, despite a $3.3 billion profit.
followed up with a $7.6 billion loss on Monday. Their results were dampened by a weak consumer business and a hefty fee for repaying bailout funds, the two issues that loom over Bank of America's performance.
After JPMorgan's report on Friday, shares of the big four money-center banks -- JPMorgan, Citi, Bank of America and
- dropped between 2% and 3% each. The stocks continued to slump early Monday after Citi's report but were rebounding in recent action.
Here's a look at what to expect from fourth quarter results at the largest bank in the country:
Several factors will weigh on Bank of America's fourth-quarter results. Banks tend to pack write-downs into the last three months of the year to clean up balance sheets for a fresh start in the next one. Results won't be helped by a seasonal slowdown in trading activity, a $4.1 billion TARP repayment charge, consumer loan losses that remain elevated, and a mortgage business that has slowed down from its breakneck pace in the spring and summer.
Analysts expect Bank of America to report a loss of 52 cents per share, on average, according to
. Sandler O'Neill's Jeff Harte reduced his estimate to a loss of 31 cents per share from a breakeven performance. He said the change was "primarily driven" by the hefty cost of repaying TARP, but also cited expectations for reduced trading revenue and higher loan losses. He expects Bank of America's "core" trading revenue to have dropped 20% last quarter, and for the firm to report $1.3 billion in valuation losses.
Todd Hagerman, an analyst with Collins Stewart, estimated that fourth-quarter earnings probably dropped about 10% to 20% at U.S. banks, but says things have gotten better. Industry-wide profits had tumbled 50% to 70% in the third quarter and 70% to 100% during the first half of 2009.
"Profitability remains elusive for many banks," Hagerman says.
All eyes will be on Bank of America's huge credit-card business, which has been a troublesome loss leader for the firm. Executives have said losses in the division may have peaked toward the end of 2009, but they're likely to remain elevated in coming months. A telling sign may be in trust data released on Friday, in which Bank of America reported that delinquency rates dropped in December, while charge-off rates increased. The bank may be writing off the bad debt to get it out of the way, even if consumers are shirking on loan payments less commonly.
Hagerman believes that such balance sheet clean-ups and positive earnings outlooks for 2010 could set the stage for a bank-stock resurgence. He's advising clients to buy Bank of America and other firms that are heavily weighted in consumer finance, like Wells Fargo,
Fifth Third Bancorp
Analysts expect Bank of America to report $28.6 billion in revenue for the fourth quarter, up slightly from $26 billion in the previous period. But given the reality of lending and trading, and after JPMorgan's
revenue disappointment, the market may have grown more cautious toward B of A.
The one light at the end of Bank of America's revenue tunnel may be its investment banking division.
Investment banking revenue is expected to have surged, as the Bank of America-Merrill Lynch franchise flexed its muscles in the debt and equity markets. Harte believes the firm's equity origination volume climbed 38% from the previous period, with advisory revenue up 50% and completed advisory revenues - which include deals announced in previous quarters - up nearly 150%.
However, Harte notes that Bank of America advised on a lot of big deals, such as Pfizer's $65 billion acquisition of Wyeth and Merck's $45 billion acquisition of Shering-Plough. Since fees don't increase proportionally with deal size, it may mean that the firm did some heavy lifting to increase its presence on the Street, but didn't necessarily see a huge revenue boost.
In any case, investment banking income accounted for just 4% of Bank of America's $95 billion in revenue during the first nine months of 2009, so its impact may be marginal compared with a huge consumer-finance division, and large wealth management and trading business that undoubtedly faced greater headwinds last quarter.
Whether Bank of America shares has performed well or poorly depends on the eye -- and investment timeline -- of the beholder.
Over the past year, its stock has more than doubled from $7.18 to close on Friday at $16.26. Anyone who bought B of A when it was priced at a liquidation value in March would have seen the investment's value increase more than six-fold.
The stock is also up 8% for the first couple weeks of 2010, but down 15% from a 52-week high of $19.10 in mid-October. It's also a fraction of the $30 plus it was trading at before the
deal was announced in late 2008. Given the massive capital raising and dilution that has occurred since that time, perhaps the result is unsurprising.
Wall Street is pretty bullish about the stock at current levels. Of the 27 analysts covering the company, according to
, 22 are either at strong buy (10) or buy (12). The current median 12-month price target for the shares is $22, a level that would represent appreciation of nearly 35%.
Wednesday will be Brian Moynihan's 20th day on the job. He is a bank executive who has little experience in running a major bank, and just months running any of its major divisions. He also lacks a robust presence on Wall Street, having come up through the ranks as a corporate lawyer for Fleet, before Bank of America swallowed that company.
Just as Moynihan made his debut in Washington a few months ago, before a congressional panel investigating the Merrill Lynch merger, and as he had his opening day with the press on Jan. 4, he will have his opening day with the Street on Wednesday. He's already drawn criticism for lack of experience and for not articulating a comprehensive strategy to move the bank forward in a tough regulatory environment, with lingering credit headwinds.
Rochdale Securities' Dick Bove believes that Moynihan's public appearances so far reflect his approach in "short stints" leading the legal department, as well as the wealth management, investment banking and consumer lending divisions of the bank, over a stretch of less than two years.
"There is no insight and, most important, there is no recognition that the world has changed," Bove said in a recent note.
Moynihan has some optimists too, including NAB Research's Nancy Bush, who has known him for roughly 20 years and thinks he has the potential, if not the experience, to do well. Wednesday will be Moynihan's chance to either rally supporters or detractors around his strategy by - well, stating it.
-- Written by Lauren Tara LaCapra in New York