- Bank of America reported a solid set of results, with a beat on both top and bottom lines. Fourth quarter results were buoyed by rising interest rates, which offset lackluster operating conditions as a result of subdued economic growth.
- Total revenue grew by 11% to $24.5bn, as a result of Net interest income (NII) escalating by 28.7%. HEPS came in at $0.85versus analysts forecasts of $0.77 per share, with expenses contained at 5%.
- Management have followed a prudent and conservative policy, with pre-tax credit loss provisions increasing by 23% for the current financial year to December 2022 to $1.1bn.
- The group is expecting growth in net interest income by another 10% in 2023.
- The company has strong capital reserves, and a strong deposit book. with loans at around 50%-55% of deposits.
- Another positive for Bank of America is the growth in share buybacks which has been accretive for shareholders.
- The market cap of around $275bn, is testament to the institutional following of the company. Warren Buffet’s Berkshire Hathaway holds shares with a value in excess of $30bn and is his second biggest position, after Apple.
- Management believes that the current economic conditions are still strong. An uptick in US growth would be positive for the company, as it would benefit from loan growth and its Investment Banking Division. BOA is trading on a forward PE of 10.5x (versus the S&P500 at 17x), and is an attractive entry point. Bank of America also has a dividend yield of 2.5%. It is a high quality share which I hold in my managed offshore portfolios for clients. I also hold JPMorgan Chase, another a quality, large cap US banking share.
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