Bank of America (BAC.US) once plummeted 6%, and the CEO sent a signal of caution: Q3 transaction revenue is expected to remain flat year over year, investment bank operating expenses revenue may fall short of expectations

The Zhitong Finance App learned that Bank of America (BAC.US) CEO Brian Moynihan said that the bank's third-quarter trading revenue is expected to be “basically the same” as last year, which means that after experiencing strong growth in the first half of the year, the growth momentum of the Wall Street trading business is slowing down. At the same time, the bank's investment banking business revenue expectations are also lower than market expectations. After the news was announced, Bank of America's stock price plummeted 6% intraday on Monday, the biggest intraday decline since April last year. At the close, the stock closed down 5.14% to $59.47.

Moynihan said at a conference held at Barclays on Monday that Bank of America's third-quarter investment banking revenue is expected to be about 1.6 billion to 1.8 billion US dollars, while analysts had previously expected close to 2 billion US dollars. Weak investment banking business guidelines have further heightened investors' concerns about the bank's capital market business performance. Shares of other major Wall Street banks were also under pressure, with Goldman Sachs (GS.US) falling about 3.96% and Morgan Stanley (MS.US) falling 3.64%.

The trading business cooled down and the strong momentum in the first half of the year was difficult to continue

In an interview, Moynihan said that since the third quarter, Bank of America's stock trading business revenue has increased, but the fixed income trading business performance has declined and fluctuated greatly. It is expected that after the two offset each other, the transaction revenue for the entire quarter will remain basically the same year on year.

Analysts Keefe, Bruyette & Woods pointed out that part of the reason for the decline in financing business was the decline in international and Asian principal brokerage business balances.

This performance is in stark contrast to the first half of this year. The Wall Street trading division had a strong start to the year, and Bank of America stock traders recorded the highest quarterly revenue in history in the second quarter. However, after entering the third quarter, the financial market continued to be in turmoil. In July, AI concept stocks experienced a sharp sell-off, which once triggered sharp fluctuations in Situational Awareness, a hedge fund under Leopold Aschenbrenner. Recently, as some AI industry executives proposed slowing down the pace of artificial intelligence development, chip stocks also experienced a new round of sell-off.

Despite the slowdown in short-term transaction revenue growth, Moynihan believes the full year 2026 is likely to be a strong year for Bank of America's market business. Currently, the bank's sales and trading department is striving to achieve the 17th consecutive quarter of revenue growth. When talking about whether this record can be continued, Moynihan joked, “We are competing fiercely for this.”

Interest rate fluctuations curb bond financing and the Fed's decision is the key

Moynihan believes that uncertainty in the interest rate environment is currently an important factor affecting capital market activity. The Federal Reserve will hold a monetary policy meeting later this week, and the interest rate decision is expected to bring some stability to the market.

“Interest rates will eventually stabilize, and I think this will help some trading activity,” he said. However, for debt financing, which accounts for a large share of market activity, the key problem is that the interest rate structure cannot continue to fluctuate greatly. Only when companies have greater certainty about future financing costs will they be more willing to make debt issuance decisions.

In other words, the current interest rate level itself is not the only problem; sharp fluctuations in interest rates are also suppressing companies' willingness to finance. If the Federal Reserve's policy path becomes more clear, bond issuance and related capital market activities may receive some support.

The investment banking business is less competitive than expected in the capital market and is receiving more attention

In terms of mergers and acquisitions and transaction matching business, Moynihan acknowledged that Bank of America currently does not have an advantage in some industries where mergers and acquisitions have been active recently, which is one of the reasons why the bank's business performance is relatively weak. However, he stressed that the bank's reserves for trading projects are still strong, and currently it is more important to push for the completion of these projects.

Wells Fargo analyst Mike Mayo said that Moynihan attributed investment banking performance more to business combinations than execution capabilities, which further continued market discussions about “Bank of America's capital market business performance lagging behind peers.”

As a result, investment banking revenue for the third quarter is expected to be only 1.6 billion to 1.8 billion US dollars, not about 2 billion US dollars as analysts had previously anticipated, which is also an important reason for the sharp drop in Bank of America's stock price on Monday.

Net interest income is still a bright spot, and the annual increase is expected to be at the upper end of the guide

In contrast to the relatively weak capital market business, Moynihan remains optimistic about Bank of America's core banking business. He said on Monday that he was “very satisfied” with the company's net interest income guidelines.

Bank of America previously expected net interest income growth in 2026 to the upper end of the 6% to 8% range. Net interest income reflects the interest income earned by banks from interest-bearing assets after deducting relevant interest expenses, and is an important indicator for measuring the profitability of traditional banking services.