Bank of America (BAC) is scheduled to report their fourth quarter 2009 results before the market opens on Wednesday, January 20, 2010. In the last four quarters, the bank's earnings were volatile but were much better than its peer Citigroup. Much like Citigroup, third quarter revenues of BAC were disappointing compared to the second quarter.
Analysts' estimates for the fourth quarter range from a low of -$0.68 to a high of -$0.32, compared to a consensus estimate of -$0.509. This compares much worse to Citigroup's estimated figures. According to Thomson Financial, for the fiscal quarter ending December 2009, the consensus EPS forecast has decreased over the past week from -$0.505 to -$0.509 (-0.79%) and increased over the past month from -$0.524 to -$0.509 (2.86%). Of the 21 analysts making quarterly forecasts, none raised and 8 lowered their forecast.
The downward revision in the estimates is again attributable to a substantial decline in fixed income, currency and commodities trading in the fourth quarter of 2009. The capital markets environment is expected to have been worse than expected and result in a decline in sales and trading revenue and investment banking revenue.
Unlike Citigroup, Bank of America's fourth quarter revenue didn't show much volatility in the last two years. In 2008, fourth quarter revenue were lower than third quarter revenue in the same year. I don't see any reason to expect a trend reversal.
For the third quarter of 2009 Bank of America had a net loss of $1.0 billion, before preferred dividends, or a loss of $0.26 per diluted share after deducting preferred dividends of $1.24 billion, including almost $900.0 million related to the government and TARP. The termination of the government asset guarantee term sheet resulted in an expense of approximately $400 million in the quarter. The mark on the Merrill-structured notes was a negative $1.8 billion and the mark on the company's own derivative liabilities was $700.0 million.
In the fourth quarter, Bank of America is likely to report a net loss in excess of $1.5 billion. However, the bank is likely to benefit from the positive trends seen in the previous quarter. The balance sheet continues to be managed prudently, resulting in lower risk-weighted assets, increased liquidity, and improved capital ratios. Merrill Lynch continues to provide a significant contribution to operating revenue. BAC's $45 billion TARP repayment is certainly a very positive move for the bank but it will certainly impact their fourth quarter results.
On the executive appointment side - the fact that multiple candidates weren't interested in the CEO position is very indicative of the tremendous headwinds still facing Bank of America. However, the decision to promote Brian Moynihan to CEO should also contribute to stabilization at the financial giant.
In 2009, Bank of America's shares managed to gain 7%, but underperformed the 19% gain in the Dow Jones industrial average. However, BAC's shares staged a massive recovery from their low of under $3 in early March to reach over $18 in October. I continue to expect the stock to hover around $17 for the next two quarters.
