17 July 2020

Bank of America Stock Tumbles Despite Q2 Beat

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News shaping
the markets today

     

What’s happening: Shares of Bank of America Corp declined on Thursday despite the bank reporting second-quarter results that exceeded market expectations.

What happened: The Charlotte, North Carolina-based bank benefitted from volatility in the financial markets due to the covid-19 pandemic.

Bank of America achieved its best quarter in around eight years in terms of trading revenue. Investors seemed unimpressed, however, by the company’s performance and sent the stock down in yesterday’s trading session.

How were the results: Bank of America reported a decline in its net income and revenue for the second quarter, although both metrics still managed to surpass expectations.

  • Revenue declined to $22.3 billion, from $23.1 billion in the same quarter last year. The figure came in ahead of the consensus view of $21.8 billion.
  • Net income stood at $3.5 billion, or 37 cents per share, down from $7.3 billion, or 74 cents per share in the year-ago quarter. Earnings beat the consensus estimate of 28 cents per share.

Why it matters: The banking industry is trying to adapt to the new normal where some economies are gradually easing restrictions, while others are rolling back their reopening efforts faced by a resurgence of the virus. Although consumer spending is showing signs of bouncing back, the latest economic forecasts have weakened, pointing towards a slower recovery of the global economy.

Bank of America joined its major peers to report better-than-expected trading revenue for the second quarter. The bank’s fixed-income trading revenue grew 50% to $3.2 billion. Investment banking fees also surged by a whopping 57% to a record $2.2 billion in the quarter.

On the other hand, Bank of America’s consumer banking business suffered immensely during the quarter, with the unit’s profit dropping 98% as the pandemic forced economies to close and millions of people lost their jobs. Its net interest income also contracted by 11% to $10.8 billion, with a decline in interest rates.

Investors were also unhappy with management’s decision to set aside $5.1 billion for loan losses, the highest in around ten years. Several other banks, including JPMorgan Chase, Citigroup and Wells Fargo, which recently reported results had also indicated the allocation massive credit-loss provisions worth approximately $28 billion.

How shares responded: Bank of America’s shares fell 2.7% to close the regular session at $23.93. The stock has lost around 32% year to date, but has gaining 12% over the past three months.

What to watch: With some improvement in consumer spending, investors expect Bank of America’s consumer banking division to gradually recuperate. With some regions tightening restrictions again due to a surge in covid-19 cases, the bank’s path to recover appears more challenging than earlier anticipated.

The Markets Today

     

European stocks will be in focus today, ahead of various economic reports scheduled for release later in the day.

Context: European stocks closed lower on Thursday following the ECB’s interest rate announcement. Markets shrugged off China’s upbeat economic growth data.

Details: The European Central Bank announced plans to hold its interest rates unchanged, while continuing to assess the region’s economic strength. However, the central bank also said that it would continue with its stimulus program announced in March to support the bloc’s economic rebound from the coronavirus pandemic.

Meanwhile, China reported 3.2% GDP growth for the second quarter, rebounding strongly from the previous quarter’s contraction and beating market estimates of 2.5% growth. However, investors seemed to shrug off this news, as the rising coronavirus cases continues to weigh on sentiment.

The pan-European Stoxx 600 declined 0.47% on Thursday, with travel stocks falling around 2% to lead the market’s decline. Materials shares bucked the overall market trend, rising 0.5%.in the previous session.

Orphan Biovitrum’s shares fell 8% on Thursday after the Swedish firm reported results for the second quarter. Shares of GVC Holdings slid by around 4% after the British company posted a 22% decline in net gaming revenue for the second quarter and announced the retirement of its CEO, Kenneth Alexander.

London’s FTSE 100 lost 0.67% on Thursday, while the German DAX 30 index and French CAC 40 declined by 0.43% and 0.46%, respectively.

What to watch: Investors await data on construction output and inflation rate from the Eurozone. The Eurozone's annual inflation rate is projected to increase to 0.3% in June, versus a four-year low of 0.1% in the earlier month. Construction output in the Eurozone plunged 28.4% in April, versus a revised 17.5% decline in the prior month.

Markets will continue to monitor the daily covid-19 figures, with total infections exceeding 13.7 million globally.

Other Markets: US indices trading closed lower on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 down 0.50%, 0.34% and 0.73%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Italy’s industrial new orders and industrial turnover, Spain’s balance of trade, Canada’s wholesale sales as well as the US housing starts, building permits, University of Michigan's consumer sentiment index and Baker Hughes crude oil rigs.

 

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