Q2 Preview: BofA (BAC) to Take Mortgage Charges, But Will Capital Ratios Suffer?
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Price: $13.62 +1.34%
Revenue Growth %: +5.4%
Financial Fact:
Equipment: 550M
Today's EPS Names:
DSX, REDF, REX, More
Revenue Growth %: +5.4%
Financial Fact:
Equipment: 550M
Today's EPS Names:
DSX, REDF, REX, More
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Bank of America Corp. (NYSE: BAC) is slumping to new two-year lows today, ahead of its second-quarter earnings results, expected out before the market opens tomorrow. The stock dropped as much as 4.7 percent to $9.53 per share this afternoon.
The financial megalith is expected to report a loss of 90 cents per share, with revenues of $12.34 billion. The loss would be a reversal of an operating EPS of 17 cents per share of last quarter, and 27 cents per share reported in the same period last year.
BofA shares have notably plummeted through the quarter, losing 17 percent to $10.96 at the end of June. The stock is down an additional 13 percent since then. Notably, BofA was trading at the exact same level at the end of the quarter compared to where it started 2011.
Peers JPMorgan (NYSE: JPM) and Citigroup (NYSE: C) reported their second-quarter results last week. Both beat consensus estimates. JPMorgan has a Tier 1 Capital Ratio of 12.4 percent, while Citi was 11.6 percent.
Analysts are relatively firm on the stock; data from Bloomberg shows 20 analysts with a Buy rating, 18 at Hold, and none suggesting to Sell. The Analyst price target average is $15.90 with a low of $12 and high doubling to $24. BofA has traded in a range of $9.53 to $15.31 over the last 52-weeks.
Analyst Insight
Wells Fargo is aiming for a loss of 91 cents per share, but an operating EPS of $0.31. Wells comments: "BAC preannounced Q2 results, which included a slew of mortgage-related charges and one-time gains/losses. The $20.6B pretax tally of mortgage-related charges consist of (1) a $8.5B payment to settle litigation related to legacy CFC private-label RMBS securities, (2) an additional $5.5B repurchase provision primarily related to non- GSE exposure, (3) a $2.6B goodwill impairment charge in Consumer Real Estate Services, and (4) other charges related to litigation, an MSR valuation adjustment, and costs related to foreclosure delays, which sum to $4.0B. Helping to partially offset these charges are $2.5B in pretax gains, chiefly from the sales of the remaining BLK stake and Balboa Insurance." No loan growth is expected in the quarter. Further, as noted by several sources, trading revs are expected to be lower, with Wells seeing a 28.6 percent drop to $3.5 billion. Overall credit provisions should also decline in the quarter, a positive for BofA.
Deutsche Bank sees BofA reporting a loss of 88 cents per share, with an operating EPS of $0.30. Deutsche points to the mortgage-related charges as well, though they sees trading revs down about 20 percent sequentially. Deutsche also commented: "ongoing efforts to reduce proprietary trading may weigh on results in 2Q."
Investors will be focused on capital levels and any hint that the bank may need additional capital to maintain Basel rules following recent and future mortgage settlements. A report today suggested the company may need to build its capital cushion by $50 billion, which would delay a dividend increases.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.
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The financial megalith is expected to report a loss of 90 cents per share, with revenues of $12.34 billion. The loss would be a reversal of an operating EPS of 17 cents per share of last quarter, and 27 cents per share reported in the same period last year.
BofA shares have notably plummeted through the quarter, losing 17 percent to $10.96 at the end of June. The stock is down an additional 13 percent since then. Notably, BofA was trading at the exact same level at the end of the quarter compared to where it started 2011.
Peers JPMorgan (NYSE: JPM) and Citigroup (NYSE: C) reported their second-quarter results last week. Both beat consensus estimates. JPMorgan has a Tier 1 Capital Ratio of 12.4 percent, while Citi was 11.6 percent.
Analysts are relatively firm on the stock; data from Bloomberg shows 20 analysts with a Buy rating, 18 at Hold, and none suggesting to Sell. The Analyst price target average is $15.90 with a low of $12 and high doubling to $24. BofA has traded in a range of $9.53 to $15.31 over the last 52-weeks.
Analyst Insight
Wells Fargo is aiming for a loss of 91 cents per share, but an operating EPS of $0.31. Wells comments: "BAC preannounced Q2 results, which included a slew of mortgage-related charges and one-time gains/losses. The $20.6B pretax tally of mortgage-related charges consist of (1) a $8.5B payment to settle litigation related to legacy CFC private-label RMBS securities, (2) an additional $5.5B repurchase provision primarily related to non- GSE exposure, (3) a $2.6B goodwill impairment charge in Consumer Real Estate Services, and (4) other charges related to litigation, an MSR valuation adjustment, and costs related to foreclosure delays, which sum to $4.0B. Helping to partially offset these charges are $2.5B in pretax gains, chiefly from the sales of the remaining BLK stake and Balboa Insurance." No loan growth is expected in the quarter. Further, as noted by several sources, trading revs are expected to be lower, with Wells seeing a 28.6 percent drop to $3.5 billion. Overall credit provisions should also decline in the quarter, a positive for BofA.
Deutsche Bank sees BofA reporting a loss of 88 cents per share, with an operating EPS of $0.30. Deutsche points to the mortgage-related charges as well, though they sees trading revs down about 20 percent sequentially. Deutsche also commented: "ongoing efforts to reduce proprietary trading may weigh on results in 2Q."
Investors will be focused on capital levels and any hint that the bank may need additional capital to maintain Basel rules following recent and future mortgage settlements. A report today suggested the company may need to build its capital cushion by $50 billion, which would delay a dividend increases.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.
Join StreetInsider.com FREE and get immediately alerted when news breaks on your stocks and other market items - JOIN NOW
*NEW - Download StreetInsider's FREE iPhone and iPad App - Click Here
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