BAC Stock Forecast: Anticipated Drop in IB Fees in Q3

Bank of America (BAC:NYE) is preparing for a potentially challenging third quarter as CFO foresees a downturn in investment banking (IB) fees, concerns regarding loan growth, and rising deposit costs. Despite the headwinds, the bank aims to outperform the sector. This article will highlight the effect of these challenges on the BAC stock forecast.

Borthwick’s Insight:

Bank of America’s Chief Financial Officer, Alastair Borthwick, recently shared his outlook during the Barclays Global Financial Services Conference. He acknowledged that the investment banking fee pool is currently facing a decline of approximately 30% to 35%. Despite this, Borthwick expressed optimism, stating that Bank of America is expected to weather this storm with a performance that is “slightly better than that” of the broader industry.

Comparing Year-Over-Year Challenges

The pressure on IB fees is noteworthy, given the comparatively more favorable year-over-year comparisons. Notably, investment banking fees for major U.S. banks saw a decline in the previous year due to a challenging macroeconomic environment. According to Borthwick, Bank of America is projected to deliver IB fees of about $1 billion in the third quarter of 2023, a decrease from $1.2 billion in the prior-year quarter. In Q3 2022, BAC’s IB fees witnessed a substantial 46% drop, reflecting the weakened underwriting activity across the industry.

Loan Growth Concerns:

Alongside the concerns surrounding IB fees, Bank of America is also facing challenges related to loan growth. Wells Fargo analyst Mike Mayo lowered the price target for BAC stock from $43 to $40 on August 23, citing lower-than-expected loan and capital market growth. Additionally, regulatory changes may result in Bank of America repurchasing fewer shares. Despite these adjustments, Mayo maintained a Buy rating for BAC stock, underscoring his bullish sentiment towards the bank.

Ongoing Challenges:

Beyond the concerns of lower IB fees and loan growth, the firm is also grappling with the impact of higher deposit costs. However, Borthwick reiterated a positive full-year net interest income (NII) outlook, which is expected to exceed $57 billion, providing a glimmer of optimism amid the challenges.

BAC Stock Forecast:

Based on the Bank of America Corp stock forecast by 17 analysts, the average target price for Bank of America Corp over the next 12 months is $35.91 in USD. The average analyst rating for the stock is Buy. Interestingly, Stock Target Advisor’s own analysis of Bank of America Corp leans Bearish, influenced by three positive signals and nine negative signals.

Closing Performance Snapshot:

As of the last closing, Bank of America Corp’s stock was priced at $28.48 USD. Over the past week, it experienced a 1.73% decrease, with a more substantial decline of 8. (https://mclaneedgers.com) 98% over the past month and a significant drop of 18.49% over the last year.

Conclusion:

Bank of America is gearing up for a challenging third quarter, with expectations of lower IB fees and concerns regarding loan growth and rising deposit costs. Despite these hurdles, the bank remains resolute in its efforts to outperform the industry and has a positive outlook on its net interest income for the year. Analysts hold varying opinions on BAC stock, reflecting the dynamic nature of the financial sector.

Maryam Nasir