BAC Stock: Is Bank of America Corp Going to Survive Its Earnings Call?

BAC stockBad News for BAC Stock?

Bank of America Corp (NYSE:BAC) lost 15% of its market cap this past year and things may be getting worse for the behemoth-sized bank. Many analysts are worried that BAC stock could take a hit after it releases earnings tomorrow (Thursday, April 14).

A FactSet survey shows the market expects earnings of $0.22 per share for the quarter, down from $0.27 per share last year. However, the decline isn’t specific to BofA alone. The entire financial industry is in the same position. (Source: “FactSet Earnings Insight,” FactSet, April 8, 2016.)

After all, financials have been under significant pressure in this market. Persistently low oil prices are taking a toll on energy loans and low interest rates are eating away at bank margins. Oh, and to cap it all off, regulators just rejected the “living wills” of five major banks. (Source: “Bank of America ‘Living Will’ Doesn’t Meet Regulatory Standards,” The Wall Street Journal, April 13, 2016.)

Living wills are a key component of the Dodd-Frank Financial Reform Act meant to contain the fallout of a bank failure. If a bank becomes insolvent, the living will would stop that bank’s damage from extending to the rest of the economy. Although banks are supposed to design their own living wills, it’s up to the regulators to approve them.

And Bank of America is among five major banks that just got their living wills rejected. Not only does that mean that BofA has to go back to the drawing board, but it also shows that regulators are willing to play hardball. The timing of the release was entirely by choice.

So is it coincidence that regulators chose the day before BofA announces its earnings?

Not a chance. Bank of America was already in a tough spot after analysts reduced their projected earnings for BAC stock from $0.33 per share to $0.22 per share. Now the company have to deal with questions about why regulators rejected its living will.

At the end of last year, banks had been primed for a rising interest rate environment in 2016. But the Federal Reserve scaled back those expectations after seeing markets roiled by uncertainty in the first quarter. China’s economic growth cratered, commodities were subdued, and there was no “high growth” sector to be found.
It’s possible that by kicking the next rate hike down the road, the Fed caught banks off-guard. Maybe it messed with their planning or maybe it just ate into their interest rate margins. Whatever the case may be, analysts are expecting tepid results from the nation’s biggest banks. Keep a close eye on BAC stock.