Update shared on13 Mar 2025
Fair value Increased 27%Favorable Net Interest Income Outlook
- Bank of America (BofA) exceeded Q4 2024 expectations by reporting net interest income (NII) of $14.5 billion, surpassing estimates by $170 million. Higher interest rates and an increase in commercial and consumer loan volumes drove this growth.
- The latest results confirm the original assumption that elevated interest rates would benefit BAC’s NII. The strong loan growth and positive NII outlook align with my narrative that BAC’s conservative loan book and strong balance sheet would support its financial performance.
- Further projections for NII remain positive, as the management set expectations of $15.5 to $15.7 billion by Q4 2025. Analysts believe this growth stems from the bank’s ability to capitalize on favorable Federal Reserve policy and sustained demand for credit.
- The bank also reported a 5% year-over-year growth in commercial loans, showcasing strong business activity within the domestic economy.
Political Risks and Market Sentiment
- President Trump publicly criticized BofA CEO Brian Moynihan at Davos, accusing the bank of political bias against conservatives. BofA and JP Morgan asserted that they have never closed an account for political reasons. Still, U.S. banks have previously restricted lending to certain individuals and industries while denying political views as a catalyst.
- Although it is unlikely Trump would directly impact the business, BofA is one of the most reputable financial institutions(as highlighted in my original thesis) that traditionally had close ties to the government and helped stabilize financial markets following turmoils, such as in 2008. While Trump’s criticism is hard to quantify, his influence over consumer sentiment is not to be underestimated.
Competitive Edge Over Wells Fargo
- BofA trades at a 30% premium to book value, compared to Wells Fargo's 59%, suggesting it offers better relative value. This valuation disparity highlights a potential upside for BofA, as investors may rotate into the stock for its comparative affordability. This fact is particularly important for institutional investors restricted by investment size, who must deliver relative value—not absolute returns.
- With record-high deposits of $1.97 trillion and steady loan growth, BofA solidifies its position as a dominant force in U.S. banking. These strong fundamentals give it a competitive edge, even if the broader industry faces headwinds from regulatory and market pressures.
I'm leaving my narrative unchanged, but keeping a close eye on NII performance in Q1 to validate the income thesis for 2025.
Disclaimer
Simply Wall St analyst StjepanK holds no position in NYSE:BAC. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimate's are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.