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Bank of America Earnings: What to Expect

The market hasn't been swayed by Wall Street's collective "buy" rating on Bank of America shares - investors want management to give them something to look forward to when the bank reports results on Tuesday.



) -- The market hasn't been swayed by Wall Street's collective "buy" rating on

Bank of America

(BAC) - Get Bank of America Corp Report

shares - investors want management to give them something to look forward to when the bank reports results on Tuesday.

It's been three months since CEO Brian Moynihan and his team depressed shareholders on July 16, outlining huge costs for the near-term and a dull outlook for the long-term. Since then, Bank of America's stock has lost 22%, closing at $11.98 on Friday. The stock hit a 52-week low of $11.74 the same day.

>>>Bank of America Rally Awaits CEO Speech

In recent weeks the stock has slumped anew on signs that processes in BofA's troubled mortgage division have become a liability. The Charlotte, N.C.-based bank has implemented a nationwide halt to foreclosure proceedings and faces an estimated $3.5 billion in repurchase requests - all due to shoddy documentation practices.

On Tuesday, when Bank of America outlines its third-quarter results, CEO Brian Moynihan will be tasked with giving investors something to look forward to for the quarter.

Analysts estimate that Bank of America earned $2.8 billion, or 16 cents per share, in the September period on revenue of $27.2 billion, on average, according to



It's not clear whether those estimates have factored in the $7 billion to $10 billion write-down Bank of America said it would book during the third quarter. The costs come as BofA implements mandatory changes to its card business. Ultimately, the Dodd-Frank reform bill will result in an estimated $22 billion in good-will write downs and upwards of $2 billion per year in lost revenue, not to mention earlier reform measures that were already eating away at the bottom line.

Still, compared with the year-ago loss of $1 billion, or 26 cents per share, BofA's projected results aren't bad. Yet investors have been looking for revenue growth - something that has been elusive for other big banks that have already reported third-quarter results.

A year ago, Bank of America brought in $26 billion in revenue. With loan demand weak, fees constrained by new regulatory requirements and investment banking in the doldrums, it's tough to see where Bank of America would have found some extra frosting for the top-line.

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JPMorgan's $23.8 billion in revenue represented a 5% decline sequentially and 10.5% from the year-ago quarter. Similarly, Citi's $20.7 billion in revenue was down 6% sequentially and 10.4% from the September 2009 period.

Two areas have represented potential silver linings - corporate banking and international consumer banking. Both business lines, along with capital markets operations, have been central to Moynihan's plan to restructure Bank of America and help it grow. It's unclear whether that will be evident in third-quarter results, but equity analysts remain positive on the stock despite the recent sell-off.

Of 31 analysts that cover Bank of America shares, 22 recommend that investors buy the stock, while nine rate it a "hold." None have sell ratings. Evercore Partners' Andrew Marquardt reiterated his "overweight" rating on Monday. He said the recent stock pressure for Bank of America - and other large-cap banking peers - is "overdone" and that the shares remain attractive at 1 times tangible book value or 5.4 times "normalized earnings, vs. 1.3 times and 8.2 times for peers, respectively.

Still, Marquardt acknowledged that "mortgage issues will be an overhang" for the stocks until there's greater clarity on mortgage risk or delinquency trends improve for a sustained period of time.

-- Written by Lauren Tara LaCapra in New York


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