Investors are excited about Bank of America Corp (NYSE:BAC) and the big reason behind this excitement is the switch of Matt O’Connor and team towards the bank. So far, the group have preferred JPMorgan Chase & Co. (NYSE:JPM) but now is upbeat on Bank of America, which trades at a 12% discount to former bank based on FY2017 projections.
The bank has more in the way of major expense deduction plans ahead of it, not to forget less consumer credit risk, mainly due to its increased base of FICO customers. If it can deliver on its planned targets, there is a higher probability for the discount between the two big banks to narrow.
In 2Q2016, Bank of America revenue declined over 7% YoY while adjusted revenue surged 0.5% over the same period, a year earlier. The net income decline 17.6% YoY in the reported period. While declining earnings and sales aren’t a promising factor, it should be noted that, in the prevailing ultra-low interest rate scenario Bank of America’s financial report was far better than the estimates of Wall Street analysts.
Moreover, falling charge offs depict that bank’s loan book is not growing at the cost of good credit quality. The only reason why bank’s earnings declined in 2Q2016 was due to lower loan sale gains and negative NII adjustments; otherwise its other four business segments posted strong profit growth.
The key takeaways
Long-term investors can identify that Bank of America was able to progress with its cost cutting plans, which helped to achieve healthy book value growth. This growth in book value is likely to lead in stock price appreciation in coming period. The bank’s consumer banking segment succeeded in improving its earnings, largely due to 8% improvement in consumer deposits, 5% jump in consumer loans, and 8% surge in its consumer brokerage division.