Interest rates in the US have dropped to historically low levels. With so much cheap money available, it becomes difficult for banks to earn a reasonable profit margin on their loans. No wonder bank stocks have had a difficult time during the pandemic. While the S&P500 has risen by 3.92% since the start of 2020, the Nasdaq Bank Index is down 33% over the same period.
Best financial stocks for 2020
Interestingly, the Nasdaq Bank Index is up almost 24% since the March market crash. Banks who also have brokerage and trading divisions, investment banking operations, and asset management businesses have done well. The big US banks like JP Morgan, Morgan Stanley, and Bank of America have been able to take advantage of higher market volatility and making outsized gains through their trading operations. Banks like Wells Fargo, which is focused more on commercial banking, has suffered during the pandemic and is not among the best bank stocks for 2020.
Bank of America Q22020 earnings beat estimates
Bank of America had reported its Q22020 earnings in July 2020. Revenues were down 3% to $22.3 billion as opposed to $23.1 billion in the same quarter the prior year. Analysts had expected revenues of $21.9 billion. Net income for Q2 was $3.5 billion, down a massive 52% as compared to $7.3 billion in Q22019. However, the net income comfortably beat analyst estimates of $2.46 billion. The sales are trading revenue grew 28% to $4.2 billion. Bank of America online capabilities have also been enhanced significantly.
Trading profits offset declining interest income
According to Bank of America CEO Brian Moynihan, “Mitigating the revenue decline from NII was strong Global Markets results. Sales and trading revenues, excluding DVA of $4.4 billion were up 35% year over year. Investment banking fees of $2.2 billion were a record and grew 57% year on year. In aggregate, we saw a $1.9 billion improvement in sales and trading investment banking year over year. Most importantly, and we think about profit in this company, our Global Markets team produced $1.9 billion in after-tax profit as a separate segment.”