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Earnings: Wall Street Sees Profit Pullback for BAC. What’s Next?

October 14, 2016
Investors await Bank of America earnings report amid slow trading environment.

Bank of America (BAC), like its big-bank competitors, has struggled amid its wrestling match with regulatory issues and shrinking profits, in a low-interest setting that shows few signs of meaningful pickup. How will the bank fare when it opens its Q3 books ahead of the bell Monday?

The fixed-income trading environment for big banks, and BAC in particular, looks like it’s finally picking up. But net-interest margin, which is the simple math between what banks pay each other for deposits and what they charge others for loans, is still getting crushed by the ultra-low interest rates that seem to have become the norm in the U.S., no matter what the Federal Reserve decides about rates later this month. Is an aggressive interest-rate hike schedule the only hope for the big banks?

Some analysts say they also will be keen to hear how BAC’s cost cutting has helped profit margin, and what other pullbacks, or new investments, are in the offing to serve up better profits. Also of interest is how the recent stabilization in oil prices may have stopped the freefall on loan losses tied to the energy sector.

Analysts reporting to Thomson Reuters are pegging a per-share profit of $0.33, which is more than 10% below the year-ago earnings. Revenue for the quarter is forecast to ring up at $20.95 billion, closely mirroring the year-ago receipts of $21.0 billion.

Short-term options traders have priced in a potential 3.5% share price move in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Ahead of earnings, options traders were hovering at-the-money and nearby, with strong activity at the 16-strike and 16.5-strike calls and the 15-strike and 16-strike puts. The implied volatility is relatively high at the 25th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

BAC Chart, Sep-Oct 2016


Like its rivals, BAC shares have traded in a tight range for more than a month, hovering in the $15- to $16-a-share scale. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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