BoA Conf Call: Muted For Equity Payouts, Better Capital News

Bank of America conf call was muted for equity holders but perhaps less so for credit investors, we feel, with a sense that equity payouts are going to disappoint, especially while capital rules remain in flux. Overall, likely a credit neutral event today but we’re now interested in other management teams looking to hoard capital ahead of rule changes.

• Net interest income outlook appears a little more muted than some were hoping, we fear. Consensus is for NII to drop 2.7% y/y in FY24, it would appear that the first half will undershoot that figure with mgmt guidance for 2H24 improvements subject to some scepticism.
• Capital cushion: mgmt are clear that the “B3E” (the terrible abbreviation for Basel III Endgame rules) are still in flux and that it both wants to run 50-100bp of excess during any transitional phase as well as continuing to invest in the business, both technology and people alongside capital. Capital consumption within the IB was higher – trading asset rose USD86bn (+16%) in 1Q24 alone. The outlook for further equity payouts appears to have been downgraded.
• IB revenues not “pulled forward”: the positive results in investment banking revenues have led to obvious questions around sustainability. GS mgmt yesterday indicated some DCM may have been “pulled forward” from future quarters but BoA mgmt were more positive than this, we feel. The market does tend to put a low multiple on these revenues anyway, we fear.
• Credit quality: there is lots of new disclosure around CRE in these results but it is notable that fully one-third of the CRE office book is now viewed as “criticized”. This is not positive for peers but our sense is that it’s no worse than some expectations already built into spreads on PBB, Aareal and the peers.