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BoA investors dismiss interest rate cut concerns for now

Article By: ,  Senior Market Analyst
July 17, 2019 1:25 PM
EPS 74 cents vs. 71 cents exp.
Revenue $23.2 billion, in line with exp.& up 21% from 1 year earlier.

Bank of America was the latest big US bank to report better than expected Q2 earnings, following in the footsteps of JP Morgan Chase, Goldman Sachs and Citigroup. The bank delivered record H1 profit, fueled by its retail lending operation. 

Also, like its peers, Bank of America cut net interest income guidance, a key measure of profitability as expectations of a Fed rate cut and lower treasury yields start to bite.
Bank of American is the most sensitive of the big US banks to changes in interest rate. Whilst consumer banking has held up for the banks across Wall Street this time round, cushioning a dismal quarter for trading and advisory, doubts over whether this will continue going forward could start to unnerve investors. 

An interest rate cut could put further pressure on net interest margins by narrowing the spread between what the bank pays on deposits and what it charges on loans. In lower interest rate environments banks must look towards cost cutting to improve margins. Costs have remained stable and are not a cause for concern currently. 

Analyst ratings:
18 buy, 12 neutral
Current target price $32 indicating an 11% upside.

Levels to watch:
Bank of America shares traded 1.4% higher trade as investors cheered the stronger than forecast results, choosing to dismiss concerns that future interest rate cuts may have on the business. The trend line indicates slight bearish momentum. Resistance can be seen in the region of $31. On the downside strong support can be seen around $26.40/50.


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