BAC Co-President Flags Q2 Markets Revenue Beat; NII Downside Risk Remains

What happened

Bank of America could exceed its initial forecast of 15% revenue growth in its markets business in the second quarter, driven by strong equities activity, Co-President Jim DeMare said Tuesday. The bullish guidance supports the bull scenario in our master thesis, which sees sustained noninterest income from markets and investment banking, but does not alter the central risk: BAC's banking-book net interest income suffers an asymmetric $2.0B hit per -100 bps of rate cuts, versus only a $0.4B gain for +100 bps. While equities momentum provides a near-term tailwind, the core earnings driver remains NII, and the upcoming 2Q26 filing should confirm whether rate sensitivity has improved. The market narrative will likely pivot from this positive revenue signal back to expense discipline and credit costs as the next catalysts. We maintain our WAIT rating, as the downside from deeper-than-expected rate cuts still outweighs the potential upside from markets revenue beats.

Implication

BAC's markets revenue strength is a favorable data point that supports noninterest income and could lift sentiment near-term, but the investment thesis hinges on NII durability through rate cuts. The 15% growth guidance suggests a favorable environment for trading and IB fees, yet the 10-Q's asymmetric rate sensitivity (-$2.0B per -100 bps) still dominates the earnings profile. Investors should use any stock strength to trim into the $55-60 range, and only become constructive if the 2Q26 filing shows NII sensitivity improving or expenses declining. Until then, the risk/reward skews negative, favoring an entry near $45.

Thesis delta

The news reinforces the bull scenario of stronger capital markets revenue, but does not shift the base case. The master thesis already assigns a 25% probability to this scenario (Bull: $65) and still sees a 50% probability base case at $55 and a 25% bear case at $43. The primary risk—faster-than-expected Fed easing and its asymmetric hit to NII—remains unchanged and will be the key determinant over the next 3-6 months.