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Bank of America’s (NYSE:BAC) investment banking (IB) division, a significant source of revenue, is anticipated to have underperformed in Q3 2023, potentially affecting its quarterly results due to be announced on Tuesday. The IB revenues, which include advisory fees from mergers and acquisitions (M&As) and business restructuring, as well as underwriting revenues from equity and debt, are projected to decline.
The global deal-making landscape experienced a slight rebound in Q3. M&A activities were softer year-over-year (YoY), impacted by geopolitical tensions, government shutdowns, high inflation rates, and concerns over an economic slowdown. This environment led to a decrease in deal volume and total deal value in Q3, likely affecting BAC’s advisory fee negatively.
Despite a vibrant initial public offering (IPO) market with 26 IPOs raising $7.7 billion in Q3, the overall performance was subdued. Follow-up equity issuances were weak in the same quarter, while bond issuance volumes improved YoY. These trends may have influenced BAC’s underwriting fees, accounting for nearly 40% of total IB fees.
Alastair Borthwick, BAC’s CFO, reported a 30-35% drop in sector IB fees from the same quarter last year at the Barclays Global Financial Services Conference. Nonetheless, he expects BAC’s IB performance to be better than average with investment banking fees around $1 billion.
According to InvestingPro data, BAC’s market cap sits at 214.39B USD, and it has a P/E ratio of 7.71. The company’s revenue for LTM2023.Q2 was 96.44B USD, representing a growth of 5.63%. It’s also worth noting that BAC has been profitable over the last twelve months, as per InvestingPro Tips.
Despite the expected benefits from higher interest rates in Q3, a weak trading performance and fears of an economic slowdown due to high inflation rates are likely to have affected its top-line growth. InvestingPro Tips suggest that BAC is trading at a low P/E ratio relative to near-term earnings growth, which could be a sign of potential value for investors.
Investment banking revenues are also crucial for banks like Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS), both of which are not expected to have seen growth in IB revenues in Q3 due to muted deal-making activities. The estimated IB income for Morgan Stanley and Goldman Sachs is $1.24 billion and $1.52 billion respectively, both indicating a YoY decline.
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