Why hould We Invest in Bank of America stocks?

There are a number of reasons that investors should be bullish on Bank of America'sstock, but the prospect of higher interest rates is the biggest of all. In fact, even if rates stay where they are today, following the increases at the end of 2016, the North Carolina-based bank should benefit immensely this year.

The benefit to Bank of America

As of the end of September, Bank of America estimated that a 100-basis-point increase in short- and long-term rates would translate into an additional $5.3 billion worth of net interest income in the following 12 months.

Since then, both short- and long-term rates have in fact gone up. Long-term rates surged by as much as 100 basis points between the end of September and the middle of December, though they've since settled at about 80 basis points higher. And short-term rates climbed 25 basis points following the Federal Reserve's monetary policy meeting in December.

Given that rates didn't adhere precisely to Bank of America's interest rate sensitivity analysis, as neither short- nor long-term rates are currently 100 basis points higher, it won't benefit from the entire $5.3 billion boost to its top line. As things stand today, it will instead see about half that, or $2.4 billion. On a quarterly basis, that equates to $600 million worth of additional net interest income that shareholders can expect it to earn between now and the end of this year.

Two points are worth mentioning here. The first is that interest rates will have to stay at or above where they were at the end of last year in order for these forecasts to come to fruition. If rates fall, which seems unlikely but you never know, then Bank of America wouldn't realize the full benefit.

But even in the absence of growth, the trend in interest rates is auspicious for Bank of America. It earned $4,3 billion in the fourth quarter of last year.

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