Bank of America Corp Earnings: Can the Bank Top Its Rivals?

After favorable reports from its peers, Bank of America needs to prove itself.

Jul 15, 2014 at 10:13AM

Bac Unattributed

On Wednesday, Bank of America (NYSE:BAC) will release its quarterly report, and shareholders have started to lose confidence in the big bank's recovery over the past several months. After reasonably good results from rivals Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C), though, Bank of America needs to give investors an upside surprise that can restore their faith in the bank's long-term turnaround.

Like Citigroup, Bank of America combines several different financial businesses under a single roof, including its namesake consumer bank and its Merrill Lynch brokerage unit. With both of those segments facing their own challenges but having their own opportunities as well, the key for Bank of America lately has been to put its troubled past behind it and move forward with growth initiatives that can undo the damage of the financial crisis. Let's take an early look at what's been happening with Bank of America over the past quarter and what we're likely to see in its report.

Stats on Bank of America

Analyst EPS Estimate

$0.29

Change From Year-Ago EPS

(9.4%)

Revenue Estimate

$21.62 billion

Change From Year-Ago Revenue

(4.9%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Bank of America earnings get growing again?
Investors have had negative views on Bank of America earnings lately, cutting their second-quarter estimates by a nickel per share and their full-year projections by more than triple that amount. The stock has also performed poorly, falling 6% since early April.

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Bank of America's first-quarter earnings report caused most of the stock's decline in the past quarter, with investors having been disappointed by the bank's having reversed year-ago profits with a more than $680 million pre-tax loss. With $6 billion in litigation expenses, Bank of America once again reminded investors that the bank's issues from the financial crisis hasn't yet resolved itself entirely. Falling net interest income also weighed on revenue, and although deposits hit a new record, the mortgage side of the business continues to make shareholders nervous.

Bank of America also made a huge mistake soon after its earnings report that cast even more doubt on its immediate future. The bank had to renege on its most recent dividend increase, citing mistakes in the way that it calculated available capital and requiring that it resubmit its capital plan to the Federal Reserve for further review. As it turned out, the error wasn't as bad as initially thought, but nevertheless, any hint of impropriety is the last thing Bank of America needed.

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CEO Brian Moynihan. Source: Bank of America.

One key question for Bank of America is whether CEO Brian Moynihan can continue to execute quietly and effectively on his mission to improve the bank's internal operations. For years, Bank of America has worked to simplify its operations, consolidating decades of past acquisitions and identifying the best parts of the bank's overall business in order to focus more attention on Bank of America's top profit-making opportunities. Along the way, Moynihan has made controversial moves like slashing its branch count, selling off non-core businesses, and simplifying its banking options to make them easier for customers to understand. Having seen Wells Fargo's success at cross-selling new products to existing customers, B of A hopes to earn more loyalty by offering its customers more perks with its products.

In the Bank of America earnings report, watch to see if the bank offers any updates on its capital plan. With many investors looking forward to B of A's dividend yield being able to match Wells Fargo's much higher yield, success in its Fed resubmission could be a catalyst to make the stock's trajectory turn upward once again.

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Dan Caplinger owns shares of Apple and warrants on Bank of America and Wells Fargo. The Motley Fool recommends Bank of America, Apple, and Wells Fargo. The Motley Fool owns shares of Bank of America, Apple, Citigroup, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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