UBS’ Best Stocks In The AI, Growth & Low Rates Era: Top 29 US Stocks

11. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Investors In Q2 2024: 92

UBS’ Sector Rating: Attractive

Sector: Financials

Bank of America Corporation (NYSE:BAC) is a diversified bank that is also one of the biggest consumer banks in America. It serves the needs of 66 million customers to provide a wide competitive moat in the industry. At the same time, this mega customer base also means that Bank of America Corporation (NYSE:BAC) has to keep its interest costs in check, particularly during times of high rates. This fact was as clear as daylight in H1 2023 when the bank’s interest expense jumped to $32.4 billion or by a whopping 754%. The trends persisted in H1 2024 when Bank of America Corporation’s (NYSE:BAC) interest expense grew by 40% while interest income dropped by $900 million. The trend of lower net interest income also persisted during the third quarter. This was because, in the nine months ending in September 2024, Bank of America Corporation’s (NYSE:BAC) net interest income fell by 2.9%. However, diversification, aided in particular by investment banking proved to be a boon. The bank’s investment banking fees jumped by 18% to $1.4. billion in Q3 due to higher market activities, and overall, allowed it to ensure that revenue remained flat annually on a nine-month basis.

Bank of America Corporation’s (NYSE:BAC) management commented on its investment banking division during the Q3 2024 earnings call. Here is what they said:

“On Slide 15, you see Global Banking results. This business produced earnings of $1.9 billion down 26% year-over-year as improved investment banking fees and treasury services revenue were overcome by lower net interest income and higher provision expense. Revenue declined 6%, driven by the impact of interest rates and deposit rotation.

In our global treasury services business, fees for managing the cash of clients continue to offset some of the NII pressure from higher rates. Investment banking had a strong quarter, growing fees 18% year-over-year to $1.4 billion, led by debt capital markets fees, mostly in leveraged finance and investment grade. We finished the quarter strong, maintaining our number three investment banking fee position. What began as a slow quarter this summer gained some momentum through September and the pipeline looking forward looks solid.”