Further growth of Bank of America shares is in jeopardy

In October 2023, the price of 20-year Treasury bonds hit a low of 79 USD before starting to recover. A week later, Bank of America shares, which had dropped to 24 USD since January 2022, began to climb, targeting their all-time high of 46 USD.

In 2020-2021, the bank purchased bonds worth over 680 billion USD, but the Federal Reserve’s interest rate hikes in 2022 caused their value to plunge by 45%. This resulted in significant unrealised losses, as the current price dropped below the purchase cost of the securities. However, since the bonds have not been sold, these losses remain potential and could be offset if prices return to their previous levels. At present, the bank’s hopes hinge on further reductions in the Fed’s key rate, which would raise the value of these assets and enable their sale without incurring financial losses. However, November inflation data indicates an upward trend, potentially forcing the Federal Reserve to resume rate hikes. The bank’s share price is at a historical maximum, while Warren Buffett is actively selling its shares. So, what lies ahead for Bank of America’s stock in 2025?

This article conducts a fundamental analysis of Bank of America’s Q3 2024 report to offer better insights. It thoroughly examines Bank of America and explores the challenges arising from its bond purchases in 2020-2021. The article also includes a technical analysis of BAC shares based on Bank of America’s stock performance, which is the foundation for the BAC 2025 stock forecast.

About Bank of America Corp

Bank of America Corp is one of the world’s largest financial institutions, offering a broad range of banking and related services. Amadeo Giannini founded the bank in 1904 in San Francisco, US, under the name Bank of Italy, which was rebranded as Bank of America in 1930. The modern corporation emerged in 1998 following a merger with NationsBank.

Bank of America provides retail and corporate banking services, investment and insurance products, asset management, and mortgage and lending services. Its headquarters are in Charlotte, North Carolina, US.

The bank’s IPO occurred in 1957 when its shares began trading on the New York Stock Exchange under the ticker BAC. Bank of America is among the largest banks in the US and worldwide, serving clients in more than 35 countries and managing assets exceeding 2.4 trillion USD.

Bank of America Corp’s main financial flows

Bank of America’s key areas of financial interest, which generate revenue, span various business lines, including retail, corporate, and investment services. These are divided into the following categories:

• Net interest income: this is generated from the difference between the interest received on loans issued and the interest paid to clients on deposits and other borrowed funds. Bank of America offers a broad range of financial products, including mortgages, commercial and auto loans, and credit cards
• Commissions: income from client transaction fees, including charges for maintaining bank accounts, processing payments and transfers, and managing assets
• Investment banking income: fees for advising on mergers and acquisitions, revenue from the issuance of shares and bonds, and earnings from trading financial instruments, including securities, currencies, and derivatives
• Asset management and insurance: asset management fees, insurance premiums, and returns on investments in insurance products
• Trading and market operations: financial gains from transactions involving securities, currencies, and derivatives
• Other sources of income: fees for safe deposit box rentals, returns from investments in sustainable development and infrastructure projects, and profits from government and corporate bonds

These areas diversify the bank’s revenue streams and make them resilient to economic crises, enabling Bank of America to compete effectively in the global market.

Bank of America Corp’s strengths and weaknesses

Bank of America’s strengths include:

• Revenue diversification: clients are offered a broad range of financial services, including retail banking, investment services, asset management, corporate banking, and insurance. This diversity strengthens the bank’s resilience to market fluctuations across multiple segments and allows it to generate revenue from various sources
• Digital innovations: the bank is actively introducing digital technologies, including mobile apps and the virtual assistant Erica. These innovations enhance service quality, improve operational efficiency, and help attract new clients
• Strong position in investment banking and asset management: the bank’s competitive advantages in investment and private banking, alongside effective asset management, ensure its leadership both in the US and internationally. As a result, it can offer high-quality services to high-net-worth clients and large international corporations worldwide
• Wide network and global presence: the bank has representative offices in more than 35 countries, enabling it to serve clients regardless of location. The bank holds a leading position both in domestic and international markets
• Substantial capital and liquidity guarantees: with significant financial resources and highly liquid assets, the bank can manage risks effectively and maintain stability during economic downturns

Bank of America’s weaknesses include:

• Dependence on interest rates: the bank’s primary revenue stream is derived from the difference between loan and deposit interest rates. This makes it sensitive to changes in the economic policies of financial regulators and fluctuations in interest rates. During periods of low rates, bank profitability typically declines
• High operating costs: despite the scale of the corporation and its high level of digitalisation, the bank incurs more substantial costs compared to its competitors, including JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC), which negatively affects the overall profitability of the transactions performed
• Weak positions in certain retail banking segments: although the bank holds a significant market share in the US, it lags behind competitors such as JPMorgan Chase and Wells Fargo in retail banking and credit cards. These banks have a larger client base and more developed service networks

Overall, Bank of America is a strong player in the financial market due to its diversification and innovations. However, it faces challenges, including dependence on macroeconomic factors and high operating costs.

Bank of America Corp’s Q3 2024 report

In October, Bank of America published its report for Q3 2024, which ended on 30 September. The key data from the report is outlined below:

• Revenue: 25.30 billion USD (+1%)
• Net income: 6.90 billion USD (-12%)
• Earnings per share: 0.81 USD (-10%)
• Operating profit: 3.65 billion USD (+23%)

Revenue by segment:

• Consumer Banking: 10.40 billion USD (-1%)
• Global Wealth and Investment Management: 5.80 billion USD (+8%)
• Global Banking: 5.83 billion USD (-6%)
• Global Markets: 5.60 billion USD (+14%)

Net income by segment:

• Consumer Banking: 2.70 billion USD (-6%)
• Global Wealth and Investment Management: 1.10 billion USD (+1%)
• Global Banking: 1.90 billion USD (-27%)
• Global Markets: 1.50 billion USD (+25%)

Shareholders received nearly 5.60 billion USD, including 2.00 billion in share dividends and 3.50 billion through stock buybacks.

Despite a 1% increase in total revenue, the bank’s net income declined by 12%. Net income from banking services in the global and US consumer markets decreased. However, the investment segment demonstrated positive trends, helping offset the banking sector’s negative impact.

Expert forecasts for Bank of America Corp’s stock for 2025

• Barchart: 13 of the 22 analysts rated Bank of America stock as a ‘Strong Buy’, three as a ‘Moderate Buy’, and six as ‘Hold’, with an average price target of 48.48 USD
• MarketBeat: 13 of the 22 specialists assigned a ‘Buy’ rating to the shares, eight gave a ‘Hold’ recommendation, and one rated it as ‘Sell’. The price target for growth is 57.00 USD, while the price target for selling is 33.90 USD
• TipRanks: 14 out of the 16 professionals recommended the stock as ‘Buy’, while two rated it as ‘Hold’, with an average price target of 51.14 USD
• Stock Analysis: out of the 21 experts, four rated the shares as a ‘Strong Buy’, nine as ‘Buy’, seven as ‘Hold’, and one as a ‘Strong Sell’, with a price target of 33.90 USD. The price target for stock growth is 57.00 USD

Bank of America Corp’s stock price forecast for December 2024

On the daily timeframe, Bank of America shares are trading within an ascending channel and have approached the upper boundary, suggesting a potential corrective decline in the price. However, the shares failed to consolidate above the 46.60 USD resistance level, signalling weakness among the bulls and increasing the likelihood of declining. Two potential scenarios arise based on the current performance of Bank of America stock.

The optimistic forecast for Bank of America stock suggests a breakout above the 46.60 USD resistance level, followed by a rise towards the channel’s upper boundary at 50.00 USD. According to some experts, if the stock rises steadily, it could reach 57.00 USD.

The pessimistic forecast for Bank of America stock predicts a corrective decline towards the trendline at 41.00 USD. A breach of this level could signal the end of the uptrend, increasing the probability of further downside. This scenario is prioritised due to several factors, such as Berkshire Hathaway’s sale of shares, the lack of significant revenue growth, and the high risk associated with unrealised bond losses.

Bank of America Corp’s stock price forecast for 2025

On the monthly timeframe, Bank of America shares have reached both the resistance line and the resistance level at 46.60 USD, indicating the potential for a price decline. At the same time, a divergence has formed on the MACD indicator, signalling the potential for a further price fall. Two future scenarios are possible based on the current Bank of America stock performance on the monthly timeframe.

The optimistic forecast for Bank of America stock suggests a breakout above the 46.60 USD resistance level, followed by a price increase. According to expert projections, the first growth target could be 57.00 USD. The next target, calculated using Fibonacci extensions, is at 66.40 USD.

The pessimistic forecast for Bank of America stock predicts a decline to the nearest support at 32.00 USD, from which the quotes may resume growth. Conversely, a breach of this support could push the price down to 16.00 USD. This scenario is prioritised due to the same factors outlined above for December 2024.

Risks of investing in Bank of America Corp’s stock

Like many other major financial institutions in the US, Bank of America faces unrealised losses on bond portfolios purchased in 2020 and 2021. At the time, these were considered relatively ‘safe’ assets with predictable returns. However, starting in 2022, the Federal Reserve began ‘aggressively’ raising the key interest rate to curb inflation, which led to a decline in the market value of previously issued securities.

A similar situation occurred with Silicon Valley Bank (SVB), which faced a liquidity crisis in 2023 and was subsequently acquired by Bank of America. This merger allowed Bank of America to strengthen its position in the technology sector but also exacerbated the issue of unrealised losses, as SVB’s bonds were transferred to Bank of America’s balance sheet.

According to accounting standards, bonds a bank intends to hold until maturity are recorded at their nominal value rather than market value. This helps the bank avoid recognising losses in its financial statements but exposes it to liquidity risks. If Bank of America is forced to sell bonds to meet its financial obligations, unrealised losses will become realised. This could also affect its capital adequacy ratio, which is crucial for meeting regulatory requirements.

As of the end of Q3 2024, Bank of America’s bond portfolio, classified as ‘held to maturity’, stood at 567 billion USD. To highlight the scale of the problem, the value of 20-year Treasury bonds has fallen by 32% since 2021. This suggests that the bank’s potential losses could exceed 150 billion USD. However, these estimates are somewhat speculative, as Bank of America does not disclose the amount of unrealised losses, deeming such information confidential.

If interest rates remain elevated for an extended period, Bank of America may struggle to offset these losses. This could limit the bank’s ability to increase profitability and reduce its debt burden.

A more severe challenge would arise if there were a mass withdrawal of deposits by customers, similar to the events that led to the collapse of Silicon Valley Bank. In such a scenario, the bank would need to sell bonds at a loss to meet client demands. Since Bank of America is a systemically important financial institution in the US, the authorities might resort to unpopular measures to stabilise the situation, such as imposing a temporary ban on withdrawals. However, the likelihood of this scenario is low, as it could trigger widespread panic and potentially collapse the US financial system.

This could be one reason Warren Buffett’s Berkshire Hathaway fund has been reducing its holdings of Bank of America shares monthly since July 2024. The fund has steadily decreased the number of these shares in its investment portfolio.

Summary

Banking operations are no longer Bank of America’s primary income source. The positive revenue trend is predominantly driven by market operations and commission fees from clients active in financial markets. However, if share prices in the equity market decline, this segment could incur losses, making it challenging to offset such a reduction in income.

A drop in share prices would necessitate additional collateral for clients’ margin positions, which could, in turn, trigger a surge in deposit withdrawal requests. The bank might need to sell bonds at a loss to meet these demands, further exacerbating its financial position.

Despite these risks, Bank of America has successfully managed similar challenges for over two years, and its shares continue to rise. However, pinpointing the exact timing of a potential crisis is impossible, so investments in Bank of America Corp’s shares should be considered high-risk.