[Click e-Stock] BoA: "IB Fees to Decrease"... Will Wall Street's Growth Be Hindered?

CEO: "Third-Quarter IB Fees Projected at $1.6–1.8 Billion"
Daishin Securities: "First Sign of Weakened Capital Market Momentum"

According to analysts in the securities industry, the recent downward revision of third-quarter earnings guidance by global investment banking giant Bank of America (BoA) could lead to a temporary pause in capital market growth. The report suggests that growth in BoA’s investment banking (IB) fees, as well as its market segment handling equities and bonds, may slow down.

On September 16, Daishin Securities reported that research analyst Cho Jaewoon stated, “This guidance should be viewed as the first sign that the previously core drivers—IB fee growth and 17 consecutive quarters of global market expansion—may be coming to an end.”

Third-Quarter IB Fee Guidance Cut... Capital Market Momentum Weakens

Recently, Brian Moynihan, CEO of BoA, projected at the Barclays Global Financial Services Conference that third-quarter IB fees will decline at least 10% quarter-on-quarter. The specific guidance provided was in the range of $1.6 billion to $1.8 billion, significantly down from last year’s $2 billion for the same period. Sales and trading revenue is expected to remain flat, similar to the $5.4 billion recorded in the prior-year quarter.

Following these remarks, BoA’s stock price experienced a larger drop, and major banking sector indices also weakened. However, deals currently underway, such as mergers and acquisitions (M&A), remain plentiful. Analyst Cho noted, “CEO Moynihan mentioned that the deal pipeline itself remains solid,” adding, “This slowdown is more likely attributable to a base effect from last year’s peak and temporary deal-closing delays, rather than a structural contraction.”

Upside Interest Rate Risk and Consumer Sector Soundness

BoA also warned that if interest rates rise further, certain segments of financial demand may decline. Analyst Cho explained, “This should be distinguished as a risk of contracting credit demand amid a rising interest rate environment, which is different in nature from the net interest income (NII) downside risk faced when rates are falling.”

Regarding the consumer sector, the report found that consumers’ spending power and credit soundness are now at their most robust levels in quite some time. Analyst Cho noted that while the risk-adjusted margin in the card segment is showing a gradual decline, this positive assessment differs from that trend and suggests the need to verify these results with actual numbers next quarter.

The guidance revision alone does not necessarily indicate a disruption in earnings driven by NII and wealth management. However, it has become clear that the base effect in the capital market segment might wear off sooner than expected.

Analyst Cho added, “It will be important to monitor whether actual third-quarter IB fees and trading revenues land within the guidance range, as well as how much of the mentioned deal pipeline results in closed transactions in the next earnings results.”

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