When Bank of America (NYSE:BAC) reports first-quarter earnings Tuesday morning, the North Carolina-based bank is likely to see its bottom line improve significantly compared to the year-ago period.
Investors can be confident about this given the recent results from JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C). Both banks benefited, in particular, from two trends that should also help to fuel Bank of America's bottom line.
First, trading revenues soared at the two New York-based banks. Markets-related revenue at JPMorgan Chase was up 13% in the quarter, with fixed-income revenue up 17%. The same figures at Citigroup were 18% and 19%, respectively.
The double-digit growth in trading revenues is less about the first quarter of this year and more about the first three months of 2016, when trading results plunged. Low oil prices and other concerns about the global economy caused institutional investors to stay on the sidelines at the beginning of last year, depriving market makers like JPMorgan Chase and Citigroup from revenue they earn from facilitating the purchase and sale of securities. It was an easy period to comp against, in other words.
Along similar lines, both banks also saw a meaningful decline in the amount of money they set aside to cover future loan losses. This is the second positive trend.
Most banks scaled up their loan loss provisions in the first quarter of last year in anticipation of loan defaults throughout the energy sector, as oil prices dropped below $30 a barrel. But with oil on the mend, JPMorgan Chase and Citigroup were able to set aside less this year. Citigroup's provisions dropped by 19%, to $1.7 billion, while JPMorgan Chase's fell by 28%, to $1.3 billion.
These trends boosted net income at the two banks by 17%, and should have a similar impact on Bank of America, given its analogous business model -- all three are universal banks, running both investment and commercial-banking operations.
On top of this, Bank of America is also set to gain from the Federal Reserve's decision in December to raise the fed funds rate, the primary short-term interest-rate benchmark in the United States. That single hike, according to the bank's estimates, should boost its net interest income each quarter this year by approximately $600 million. And that doesn't factor in the Fed's move in March to raise rates another 25 basis points.
The net result is that Bank of America, like its two close competitors, should see its bottom line benefit from a number of industry tailwinds.
To be clear, this doesn't necessarily mean that the $2.2 trillion bank's stock will climb after Tuesday's report, as bank stocks have already rallied by more than 20% over the past five months. But it does mean that Bank of America continues to put distance between itself and the financial crisis, which has weighed on its earnings for nearly a decade.