Bank of America faces a market disconnect as its strong net interest income potential is overshadowed by concerns over $70.3 billion in commercial real estate exposure and the long-term impact of higher-for-longer interest rates.
Bank of America's asset-sensitive balance sheet gains ~$1B in net interest income per 100bps rate hike, and its low deposit beta on $957B consumer deposits supports margin expansion.
Bank of America shares fell 3% to $56.22 following the Federal Reserve's decision to raise rates to 4.00%. Despite the bank's asset-sensitive balance sheet, which generates $1 billion in additional net interest income per 100 basis point hike, investors remain wary of potential credit deterioration and rising deposit costs.
While rate hikes theoretically boost Bank of America's net interest income, the market is pricing in the risk of a credit event, specifically citing the bank's $70.3 billion commercial real estate exposure and the potential for rising deposit costs to erode margins.