BUY Bank Of America (BAC)
Bank of America exceeded forecasts for revenues and earnings per share. Even after the bank made a larger provision for credit losses, earnings were slightly higher and revenue increased by 11% year over year. Interest income, which the bank generated for the quarter totalling $14.7 billion and up 29% year over year, was a major contributor to its earnings growth.
Q4's business performance for Bank of America appeared fairly robust, and highlights include the addition of more than 1 million net new checking accounts in its consumer banking division, $87 billion in new investments in its global wealth and investment management unit, and Bank of America's rise from No. 4 to No. 3 in terms of the amount of investment banking fees it collected.
The investment banking division's results were disappointing, but this was to be expected given that the firm depends on M&A transactions, IPOs, and issuance, which have recently slowed to a crawl. Overall, the bank increased its return on equity from 10.9% to 11.2% over the previous year.
A Beneficiary of Interest Rate Hikes
The recent market collapse has hurt $BAC stock, but the business is still robust. Compared to pre-pandemic statistics, charge-offs are much lower on both the consumer and commercial sides. Due to its extremely low-cost deposit base, it has been one of the banking industry's biggest winners of rising interest rates.
In reality, Bank of America's net interest yield, or the margin on its loan operations, increased over the previous year from 1.92% to 2.81%. Additionally, the bank predicts that a 1% increase in benchmark interest rates would increase its annual net interest income by $3.8 billion.
One of the key beneficiaries of the FED's program to raise interest rates was anticipated to be Bank of America. But with worries that a recession was approaching, bank stock prices took a beating last year, offering a great entry point for $BAC.
Source: Yahoo Finance