Higher interest rates are expected to drive up Bank of America‘s fourth-quarter revenue, even as the bank is projected to see a drop in profits.
Bank of America (ticker: BAC) is forecast to post revenue of $24.2 billion, up from $22.1 billion in the year-ago quarter, according to analysts surveyed by FactSet. Earnings, meanwhile, are expected to drop by 9% to $6.4 billion, or 77 cents per share.
Of the big banks, Bank of America is among those that is expected to benefit most from the Federal Reserve’s interest-rate increases in 2022. Net interest income is projected to climb 27% to $14.5 billion for the quarter as the lender collects higher interest payments on the loans it issues.
Higher interest rates come with positives and negatives. While banks earn more interest on their loans, eventually higher rates mean that banks will have to pay out higher interest to depositors. Net interest margin, or NIM—the spread between interest paid and interest earned—will likely hit 2.2%, up from 1.7% a year ago. Analysts don’t expect NIM to climb much beyond that this year, settling around 2.3%.
Also, like rival banks, Bank of America will likely make a modest build to its reserves for soured loans to the tune of $756 million, compared with an $851 million release of reserves in the year-ago quarter. Even so, analysts at Deutsche Bank say they expect Bank of America’s reserve builds will be smaller than peers during a possible downturn. Last month, Barron’s wrote favorably about Bank of America, noting that it has the highest-quality loan book in its peer group.
Bank of America shares fell nearly 30% over the last 12 months, compared with the SPDR S&P Bank ETF (KBE), which fell 21% through Wednesday’s close.
JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) also report results Friday. Morgan Stanley (MS) and Goldman Sachs (GS) share their results on Tuesday.
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