How Falling Oil Prices Have Affected Bank of America (NYSE:BAC)

How Falling Oil Prices Have Affected Bank of America (NYSE:BAC)

There are two factors that are driving down Bank of America Corp (NYSE:BAC) this year. These are the slowing rate of worldwide economic growth and falling oil prices to record 12-year lows. The company’s stock witnessed a 20% drop and is the worst hit of the top three banks in the United States. The significant drop in oil prices forced the bank to make increased provisions for loan losses in the energy sector.

Further Slowdown Seen

The slump in Bank of America and other banking stocks was due to increased fears of a global economic slowdown according to Vining Sparks analyst, Marty Mosby. Already, China as well as other emerging markets have rattled investor sentiments. Mosby indicated that the current worry was that a full-blown recession is around the corner, and that will cause more losses to banks.

So far in 2016 banking shares have been dismal performers compared to benchmark indices. For instance, the S&P500 fell only 7% while the KBW Bank Index slipped close to 15%. The index tracks the performance of the 24 biggest lenders in the US. Citigroup Inc (NYSE:C), which is the country’s fourth largest bank, witnessed a huge drop of 21% among the top four banks.

Earnings beat for 2015

Bank of America meanwhile reported earnings of $15.9 billion for the year 2015, beating estimates.

There is also uncertainty on the further hike in interest rates in the wake of a possible slowdown in global economic growth. This is possibly why investors did not cheer Bank of America’s record earnings. In December, the Federal Reserve hiked key interest rates by 25 basis points for the first time nearly in a decade. BofA is regarded as one of the best positioned to gain from higher rates.