NEW YORK (
Bank of America
CEO Brian Moynihan took over for Ken Lewis at the start of 2010, and so far, it's been so good. The stock is sitting at 52-week high levels, up nearly 30% in 2010, mostly due to a conviction on Wall Street that good news for the economy is good news for the big banks.
's first-quarter report
but its success also gave some ballast to that view, and until the rest of the big banks report their own numbers, the stocks can continue to bask in the glow. Witness
earlier Thursday for the first time since late summer 2009.
Moynihan has proved decisive. He's made a slew of personnel moves to bulk up the company's non-consumer businesses, and filled the CFO slot vacated by Joe Price in January this week with Charles Noski, an
. He has also outlined plans to pursue
selling certain assets
that it deems non-core, a switch from the company's historical strategy of grow and then grow some more.
The big banks seem to be in a sweet spot right now, able to piggy-back somewhat on the move in the broad market on the expectation that credit costs should be reaching an inflection point. But assuming the evidence of that trend continues to come in as expected, Wall Street will eventually start looking at revenue growth and regulatory risk for the group. Bank of America will provide its read of how it's faring on the business front before the opening bell on Friday.
Bank of America is expected to turn in a quarterly profit on Friday for the first time since the second quarter of fiscal 2009, but estimates of how big that profit will be have been falling of late as analysts scramble to reflect the impact of regulatory changes related to fees that can be charged for electronic fund transfers, as well as reserves related to the implementation of new rules about off-balance sheet assets that kicked in at the start of the year.
The current average estimate of analysts polled by
is for a profit of 9 cents a share in the March period. That compares to a profit of 44 cents a share in the year-earlier quarter, and a loss of 60 cents a share in the fourth quarter.
Credit Suisse lowered its estimate for Bank of America's first-quarter earnings to 8 cents a share from 10 cents a share on April 8, and it trimmed its view for the full year by a dime at the same time, going to 80 cents a share. It attributed the move largely to Reg E implications, estimating that Bank of America could sees a revenue reduction of roughly $1 billion in the second half of the year from the discontinuance of overdraft fees on point-of-sale transactions.
The firm, which left its outperform rating with a $21 price target on the stock intact, expects managed charge-offs of $11.6 billion from Bank of America, up slightly from $11.3 billion in the fourth quarter, and it's anticipating losses from credit cards and home-equity loans will tick higher on a sequential basis, while losses from residential mortgages show slight improvement.
JPMorgan analysts were more bullish about Bank of America in their preview of earnings for the large-cap banks on Monday. The firm did lower its earnings estimate for the full year by 16 cents to a profit of 87 cents a share from $1.02, but it is still above consensus for the first quarter at 13 cents a share, and it lifted its 12-month price target on the stock, which it rates at overweight, to $23.50 from $22.
A big test awaits Bank of America on the topline as the company will be
looking to reverse
a year-long trend of declines.
Wall Street's consensus view is for revenue of $27.9 billion in the three months ended in March, well below its total of $35.8 billion in the same period last year, and more than 10% above its $25.1 billion showing in the fourth quarter. And JPMorgan's beat on revenue on Wednesday may have raised expectations from there, so the pressure is really on.
One area that could be a bright spot is investment banking, as Bank of America, bolstered by Merrill Lynch, has been making its presence felt of late. Recent league tables put the company at the
top of the bookrunner charts
for the first quarter, although JPMorgan remained the leader on a fee revenue basis. JPMorgan's strong trading revenue is also a positive indicator.
The overall performance for Bank of America, however, is still tied to the health of the consumer, and it will be interesting to see if the company is able to offset some of its expected CARD Act-related loss of fee revenue with an increase in purchase volumes.
Bank of America shares made a run at $20 on Thursday, getting as high as $19.86 before pulling back. The stock hasn't traded above $20 since November 2008. Through Wednesday's close it was up 29% year-to-date, and had nearly tripled from its 52-week low of $7 set last April.
And since that $7 level was more than a double off its low during March 2009, when the broad stock market sank to its nadir of the financial crisis, the shares have certainly been active participants in the rally over the past year.
Analysts covering the company remain bullish almost across-the-board. Of the 27 analysts with ratings on the stock, 11 are at strong buy, 12 at buy and the remaining 4 are at hold. The current median 12-month price target on the shares is $21.50, implying upside of about 10% from current levels.
On a forward price-to-earnings basis, the stock still looks affordable in relation to its peers, as it's trading at 10.14 times the consensus 2011 estimate, compared to 10.23 times for JPMorgan, 14.40 times for
, and 11.83 times for
Questions about when Bank of America will boost its dividend could be on the docket for CEO Moynihan (pictured above) during the company's conference call after JPMorgan was so vocal about its desire to do so.
The fallback explanation for why the banks have yet to move on dividends is that they are waiting for clarity from regulators about capital levels going forward, but now that JPMorgan executives have reportedly said the company is targeting the second half of 2010 for an increase, the brass at Bank of America can expect to be quizzed on their wish list in terms of timing.
Moynihan may also be pressed about Bank of America's exposure to home-equity loans, which have become a hot topic among regulators wanting to stem the tide of foreclosures.
on Thursday said foreclosure filings rose 7% on a sequential basis to 932,234 properties in the first quarter, and the House Financial Services Committee called executives from
to question them about their policies on second-lien mortgages earlier this week.
Independent research firm
recently said a scenario where the big banks end up writing down 40% of home equity loans with an LTV of more than 100% -- meaning the borrowers owe more than the property is worth -- could result in a combined earnings hit of $33.2 billion for Bank of America ($7.4 billion), Citigroup ($3.4 billion), JPMorgan ($9.6 billion) and Wells Fargo ($12.8 billion).
Written by Michael Baron in New York