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Bank of America has once again shown that financial forecasting is sort of like guessing how many jellybeans are in a jar: you might not be right, but if you’re wrong, at least you can say you “topped analyst estimates.” This quarter, with earnings of 81 cents a share, they somehow exceeded the 77-cent estimate. Somehow, because their net income fell 12% from last year. The financial rollercoaster never ends!
Here’s the rundown on their not-so-glamorous report:
- Earnings: 81 cents vs. 77 cents LSEG estimate (cue applause for beating a lowered bar)
- Revenue: $25.49 billion vs. $25.3 billion estimate (see, it’s not all doom and gloom, right?)
Looking at their income statement is like reading a financial soap opera: the bank proudly declared that they netted $6.9 billion (just a casual drop of 12% from last year) with the help of some spiffy trading numbers thrown in for good measure, even as their net interest income did a sad little tango downward. The revenue only edged up by less than 1% but hey, who’s counting? They duked it out with their expenses while hoping their provisions for loan losses won’t run away with all their profits.
In fact, shares of Bank of America ended the day virtually unchanged, which can only mean investors were waiting for the next plot twist before committing to any major action. Brian Moynihan, the CEO, remains at the helm, advising everyone to feel optimistic about the swirling financial chaos around them, as if he was leading a pep rally during a hurricane.
It turns out, the financial world is an intriguing blend of chaos and opportunity where trading revenue soared because everyone decided to get a little frisky in the equity markets. Fixed income trading revenue jumped 8%—yes, it appears that when it rains dollars, it’s raining hard—thanks to surge activity with currencies and interest rates. Who knew the markets could be so exciting?
Now let’s talk about net interest income (NII) because it’s like the lifeblood of banks, except when it’s not. NII fell 2.9% from last year’s number but, as the astute analysts pointed out, it did manage to outpace the estimated decline, which is like being slower than a tortoise but beating the snails. “It seems like we’re almost on the verge of a NII recovery,” said one optimistic analyst, Mike Mayo of Wells Fargo, “but that all depends on interest rates from here!” Thanks, Mike, that’s just like saying we all need to drink more water, it’s good advice but tough to act on when soda tastes so good.
Other big players, like JPMorgan Chase and Goldman Sachs chaotically reported their earnings on the same day, and judging from the market’s attitude, everyone is still hoarding jellybeans waiting for real results. Morgan Stanley’s turn is just around the corner, with all eyes peeled for the next dramatic twist in this financial soap opera.
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