Bank of America (NYSE:BAC) the stock fell this week after analysts called its earnings “mixed.”
Shares fell around 5% in the trading week starting July 12 after the bank reported net profit of $ 9.2 billion, $ 1.03 per share and revenues of $ 21.5 billion for the three months ending in June.
Profits themselves were more than double the $ 3.5 billion take last year and well in advance analysts’ estimates. But analysts said the earnings were “slight.” they were waiting $ 21.8 billion. The reason for the shortfall was the interest margins, which were only 1.61% against an estimate of 1.67%. It is difficult to make money selling money when money is so cheap.
How bad has the performance of the BAC share really been?
I put Bank of America shares in my own retirement account last August. At the time, the shares were trading at $ 26 / share. After they fell, they opened on July 16 at over $ 39, and 72 cents / share of dividends gave me a cash return of almost 2.8%. I was not overly enthusiastic. I took the dividends in cash rather than in shares. But my overall gain is 51% in less than a year.
Until the last results release, in fact, the performance of Bank of America stock was close to that of JPMorgan Chase (NYSE:JPM), its biggest rival. The best performance of a large bank at this time was achieved by Wells fargo (NYSE:WFC), which is up 75% last year.
As long as interest rates remain low, the investment bank will be more profitable than the commercial bank. In the last quarter, the yield on 10-year Treasuries fell sharply, from around 1.75% to 1.4%. Buying money directly from Uncle Sam and putting it to work was the right thing to do, which is why stocks continued to rise.
Bank of America’s problem was its trading floor, especially its bond trading, where turnover fell by 38% of the previous quarter. Underwriting activity was also disappointing and investment banking fees declined slightly.
The release of the consumer loan loss reserve that didn’t go badly saved the day. These dogs weren’t barking. Asset management fees also increased by 27%. The problem, as long as there was one, was that customers had a good quarter.
With the bank’s clients doing well, the star of Bank of America is Merrill Lynch, the wealth management company that Bank of America bought in the 2008 stock market crash.
Merrill had a record quarter, with revenue of $ 4.3 billion, up 16%. When Bank of America’s private banking unit was added, total wealth management revenue was $ 5.1 billion. That’s still less than a quarter of the total, however.
With the clients and their brokers doing so well, keeping the advisors is a problem. During the quarter, a crew from texas $ 1.2 billion management jumped into a new venture called mForce Capital. Another group, managing $ 842 million, rose to a Raymond James Financial Office in Salt Lake City.
Merrill’s answer is “Customer experience teams” who call clients upfront from brokers, offering fee waivers for up to one year. This can prevent 40% of the assets from leaving the ship.
The result on BAC Stock
You don’t buy the shares of a big bank to make a lot of money. My experience with BAC stock has been extraordinary.
Big bank stocks are conservative investments. They help balance riskier bets on volatile tech stocks. They shouldn’t be the first titles you buy. Look for them once you have a nest egg you want to protect.
Tipranks ranked Bank of America as a moderate buy, with 8 of 12 analysts estimating an 18% gain over the next year. It seems fair. And it’s good. With a 17% dividend increase announced last month, at 21 cents a share, I sleep soundly at night.
At the time of publication, Dana Blankenhorn held a LONG position in LAC. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Dana blankenhorn has been a financial and technology journalist since 1978. He is the author of The Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, available from the Amazon Kindle store. Write to him at [email protected] or tweet it on @danablankenhorn. He writes a Substack newsletter, Facing the future, which covers technology, markets and politics.