Will the Bank of America share price and Citigroup share price rise on earnings?

The Bank of America share price [BAC] rose 40.5% from $24.19 at the close on 13 July 2020 to $33.99 at the close on 14 January 2021. It continued to climb a further 27.3% to $43.27 at the close on 4 June. 

The Bank of America share price was helped by a boost to US economic prospects from US president Joe Biden’s $2trn stimulus package and rising COVID-19 vaccination numbers.

The Citigroup share price [C], however, has been more volatile, but has also benefited from growing consumer and business optimism. The stock dropped 17.98% from $50.15 at the close on 14 July 2020 to $41.13 at the close on 28 October. The Citigroup share price rose again to $79.76 at the close on 1 June 2021 but has fallen 12.93% to $69.44 at the close on 12 July this year. 

The Bank of America share price also fell to $38.78 at the close on 18 June but has since edged higher to $40.63 at the close on 12 July.

The recent wobbles in the Bank of America share price and the Citigroup share price has been down to investors’ concerns over rising inflation and fears over the pace of economic recovery.

Investors will be keen to see what the banks have to say when they release their second-quarter earnings reports on 14 July.

  

A rocky quarter

In the first quarter, Bank of America announced a 0.2% increase in revenues to $22.8bn with net interest income down 16% to $10.2bn because of low rates. It posted earnings per share of $0.86, up 115% year over year and above analysts’ estimate of $0.66.

Provision for credit losses were down $6.6bn to a benefit of $1.9bn. Global wealth and investment management net income was up $20m to $881m. 

Citigroup posted a first-quarter net income of $7.9bn, up from $2.5bn in the same period in 2020 and revenues of $19.3bn, down from $20.7bn.

Analysts reported by Bloomberg believe that the US banking sector has had a rockier second-quarter performance. Loan growth has been hampered by both consumers and businesses that are “still flush with cash from trillions of dollars of government stimulus,” but “have yet to demand more bank financing”, the publication noted. 

“Act one was fantastic, and you’ll still see benefits from credit and capital markets but to a lesser degree,” said Wells Fargo analyst Mike Mayo in an interview reported by Bloomberg. “Act two waits to begin with improving loan growth.”

“Act one was fantastic, and you’ll still see benefits from credit and capital markets but to a lesser degree. Act two waits to begin with improving loan growth” - Wells Fargo analyst Mike Mayo

 

Low interest rates are also expected to have continued to batter net income but there are bright signs. Goldman Sachs analyst Richard Ramsden believes that the big US banks including Bank of America and Citigroup could announce an additional $8bn in reserve releases in their second-quarter reports.

Bank of America releases its second-quarter earnings on 14 July with The Street expecting it to report earnings per share of $0.77, more than double the $0.37 in the same period last year. Revenues are forecast to come in at $22.08bn hit by low rates and market volatility affecting its investment banking and trading divisions.

Citigroup, also releases its second-quarter earnings on 14 July, is tipped to report revenues of $17.58bn, down from $19.3bn in the first quarter. It will have been impacted by shutting down its retail banking operations in 13 countries across Asia and parts of Europe to focus on more wealth management, according to Tony Sycamore for City Index. However, earnings per share are expected to be up 294% to $1.97.

  

Future performance for both company share prices depends largely on whether the US Federal Reserve (Fed) will increase interest rates to tackle inflation and therefore boost bank income. 

Another likely boost for Bank of America’s and Citigroup’s share prices is the green light they have been given following the Fed’s stress tests to increase dividend payments. Trefis states that Bank of America will increase its dividend by 17% to $0.21 per share for the third quarter this year.

According to Market Screener, analysts are bullish about the Bank of America share price with a consensus outperform rating and an average target price of $43.33. Citigroup also has an outperform rating and an average target price of $83.96.

The progress of Bank of America’s and Citigroup’s share prices can be followed in ETFs in which they each have holdings. This includes the First Trust Nasdaq Bank ETF [FTXO], where Citigroup has a 7.51% holding and Bank of America has a 1.81% holding. It has a year-to-date daily total return of 30.41% to 12 July close.