BAC Shares Lag Peers in First Half: Can it Regain Momentum?

Bank of America (BAC) significantly underperformed its peers in 1H 2025, with a 7.6% gain against JPMorgan and Citigroup's over 20% surge, despite projecting 6-7% Net Interest Income (NII) growth for 2025 and announcing an 8% dividend increase to $0.28/share. While BAC emphasizes branch expansion, digital initiatives, and a robust liquidity profile, it confronts investor skepticism regarding NII momentum, deteriorating asset quality, and an anticipated over 20% decline in Q2 2025 Investment Banking fees, with macroeconomic uncertainties, particularly tariffs, contributing to a cautious outlook from analysts.

Analysis

Bank of America (BAC) presents a bifurcated outlook, characterized by significant stock underperformance against a backdrop of robust capital returns and a discounted valuation. In the first half of 2025, BAC shares appreciated only 7.6%, lagging peers JPMorgan and Citigroup, which both surged over 20%. Management projects a 6-7% growth in Net Interest Income (NII) for 2025, supported by loan demand and a higher-for-longer interest rate environment. However, investor sentiment is cautious, reflecting skepticism over NII sustainability amid potential deposit cost pressures and macroeconomic uncertainty from tariffs. This caution is amplified by specific operational headwinds: the Investment Banking (IB) division anticipates a significant decline of over 20% year-over-year in Q2 fees, a worse outlook than JPMorgan's and in stark contrast to Citigroup's projected growth. Furthermore, asset quality is a material concern, with provisions and net charge-offs showing a consistent and sharp rise since 2022 and into Q1 2025. Offsetting these negatives are a solid liquidity position with $942 billion in sources, a successful stress test result enabling an 8% dividend increase, and an active $25 billion share buyback program. The stock trades at a price-to-tangible book ratio of 1.77x, a notable discount to the industry and JPMorgan, but this inexpensive valuation is tempered by the near-term operational challenges and deteriorating credit metrics.

Key Decisions for Investors

• Investors should weigh the attractive capital return profile, including an 8% dividend hike and a $4.5 billion quarterly buyback target, against the tangible risks of deteriorating asset quality and a weak near-term outlook for the investment banking division.
• Given the stock's significant underperformance and the company's projection for a sharp Q2 decline in investment banking fees, it may be prudent to await more clarity on macroeconomic factors like tariffs before initiating new long positions.
• Consider the relative value proposition, as BAC's valuation discount to peers like JPMorgan must be justified against its weaker stock momentum and more negative near-term guidance in key business segments.