Tyler Durden: Expectations of a “less terrible” first quarter for banks may have been premature following yesterday’s stronger than expected JPM earnings report.
First it was both PNC and Blackrock missing on the top and bottom line, but the highlight of the day was Bank of America which moments ago reported $0.20 in EPS, missing expectations of a $0.21 print, while revenue ex-DVA dropped by $1.4 billion to $19.7 billion, also missing expectations of a $20bn print.
BofA reported Net Income of $2.68 billion, down from $3.1 billion one year ago.
The breakdown of earnings from the company’s presentation was as follows:
The bank provided the following bridge detailing the components of its net income, which showed a relatively stable picture except for a big drop in the “all other” plug.
But the all important chart table everyone was focusing on was the bank’s “global markets” trading breakdown which was as follows.
This is what BofA said:
- Excluding net DVA, sales and trading revenue of $3.3B increased seasonally by 25% from 4Q15, but declined 16% from 1Q15
- FICC revenue decreased $0.5B, or 17%, from 1Q15, due primarily to a weak trading environment for credit-related products as well as a decline in currencies from a strong year-ago quarter, partially offset by improved performance in rates and client financing
- Equities revenue decreased $0.1B, or 11% from 1Q15, reflecting a weaker trading performance in a challenging market environment
The total trading revenue of $3.3 billion was in line with the $3.29bn expected, and while FICC’s $2.3bn missed expectations of $2.32bn, equities revenue of $1.0 billion was a modest beat to the $970MM expected.
Perhaps just as troubling is that while BofA reported a pick up in adjusted NIM which rose to 2.31%, its actual Net Interest Margin declined once more, this time to 2.05%, the lowest on record, as the bank generated only $9.4 billion in net interest income, down from $10 billion last quarter.
And while BofA also generated a total of $10.34 billion in non-interest income (vs $9.9bn Q/Q), this was not enough to offset the surprising rebound in noninterest expense, which rose by $800 million Q/Q to $14.8 billion, if down $1 billion from a year ago.
Here is BofA’s expense breakdown:
- Total noninterest expense of $14.8B in 1Q16 declined $1.0B, or 6%, from 1Q15, driven by lower revenue-related incentives, progress made on LAS costs and the expiration of fully amortized advisor retention awards
- First quarter expenses included the following compensation costs:
- Annual retirement-eligible incentive costs of $0.9B and $1.0B in 1Q16 and 1Q15
- Seasonally elevated payroll tax costs of $0.3B in both 1Q16 and 1Q15
- LAS expense, excluding litigation 1, declined to $0.7B in 1Q16
- FTE headcount was down 3% from 1Q15, as continued progress in LAS and other reductions in support staff and operations more than offset increases in client-facing professionals
Things were stable on the consumer banking side as the following chart reveals, with a focus on the continuing increase in loans and leases.