Bank of America Profit Falls 17% on $1.2 Billion Penalty
Bank of America absorbed a $1.2 billion penalty from U.S. regulators in the third quarter, dragging net profit down 17% to $6.93 billion, or 91 cents a share, Cnbc reported. Excluding the charge, which
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Bank of America absorbed a $1.2 billion penalty from U.S. regulators in the third quarter, dragging net profit down 17% to $6.93 billion, or 91 cents a share, Cnbc reported. Excluding the charge, which cut 17 cents from earnings, per-share profit would have been $1.08.
The penalty stemmed from the bank’s failure to report billions of dollars in suspicious transactions, and it revived analyst questions about how tightly management controls risk at the second-largest U.S. bank by assets. Shares of the bank dropped 8% in early trading, according to Cnbc. Blockonomi reported the stock closed Wednesday at $51.39, down 4.76%, after sliding roughly 7.14% to $50.105 during morning trading.
Also read: JPMorgan Q3 Profit Misses Estimates as Dimon Warns on Inflation
Key facts
- Third-quarter net profit fell 17% to $6.93 billion, or 91 cents a share; adjusted EPS was $1.08, about two cents below the roughly $1.10 analysts expected.
- Revenue rose 3.2% to $30.12 billion on an FTE basis, about $570 million short of expectations, largely on trading misses.
- Fixed income trading revenue fell 17% to $2.55 billion, roughly $450 million below the StreetAccount estimate; equities trading rose 10% to $2.51 billion but missed by nearly $300 million.
- Net interest income rose 7.9% to $16.6 billion, edging out the $16.53 billion StreetAccount estimate.
- The bank returned $8.3 billion to shareholders through dividends and common stock repurchases and ended the quarter with a 10.9% common equity Tier 1 ratio, per Blockonomi.
Trading shortfall undoes flat guidance
Trading operations generated about $750 million less than expected, and the combined bond and stock results fell 5% overall. That reversed guidance given in September, when CEO Brian Moynihan told analysts trading revenue would be roughly flat. Investment banking revenue dropped 11% to $1.8 billion, roughly in line with expectations and that September guidance.
Management pinned the bond trading weakness on a sharp move in rates. CFO Alastair Borthwick said credit and mortgage trading businesses tend not to fare well when rates rise 85 basis points in a quarter, according to Cnbc. Wells Fargo analyst Mike Mayo, in a note published Wednesday, described the firm’s capital markets results as “easily worst in class” for the quarter.
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Blockonomi reported that adjusted noninterest expenses climbed about 6.9% to $18.5 billion from $17.3 billion, outpacing revenue growth. The adjusted efficiency ratio rose to 62% from 60% a year earlier, while the reported ratio hit 66% once the settlement charge was folded into operating expenses. Blockonomi also reported cumulative sales and trading revenue of roughly $5.1 billion, down 5%, and an 11% rise in equities trading; Cnbc put the equities figure at 10%. The two outlets likewise diverge on net interest income figures — Cnbc reported $16.6 billion, up 7.9%, while Blockonomi cited approximately $16.4 billion on an 8% increase.
Compliance questions land on the CEO
The Treasury action, announced Tuesday, sharpened attention on Moynihan, who took the helm in 2010 and spent his early years addressing mortgage-related abuses after the 2008 financial crisis. On Wednesday’s earnings call, analysts pressed him on earlier guidance that compliance-related costs would stay contained. JPMorgan analyst Vivek Juneja told management that the scale of the charge was not beyond the bank’s balance sheet but raised a reputational and confidence issue.
Other analysts asked about the pace of future buybacks and the trading underperformance. The penalty lands in a week that was otherwise routine for bank earnings: JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo posted mixed results Tuesday, with JPMorgan missing both EPS and revenue estimates for the first time in years, according to Cnbc.
Why it matters
Bank of America investors watch net interest income closely as the core profitability engine, and that line held up, which keeps the miss contained to capital markets and one-time costs. The bigger question is operational: a penalty tied to suspicious-transaction reporting puts compliance spending back in focus just as the bank is trying to hold expenses below revenue growth. For shareholders, the tension is between continued capital returns and the possibility that fixing controls eats into the efficiency gains of recent years. Rivals did not escape the quarter unscathed either, suggesting the pressures were industry-wide rather than unique to Bank of America.
What to watch
Guidance on compliance costs and the pace of share repurchases in coming quarters will show whether the expense gap narrows. Fourth-quarter trading results will test whether the bond desk’s weak patch was a one-period rate effect or something longer lasting.
This is not financial advice. Markets are volatile and uncertain, and share prices can move sharply on information not available at the time of writing.
Sources: CNBC, Blockonomi
Benjamin Carter covers business, finance, and the stock market for StockPil, focusing on the trends and data that matter to everyday investors.
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