Bank of America shares drop 8% after third-quarter revenue miss and regulatory penalty
Bank of America shares fell Wednesday after the company posted weaker-than-expected trading revenue and the impact of a $1.2 billion Treasury fine.
Key points
- Bank of America's third-quarter profit fell 17% to $6.93 billion after a $1.2 billion regulatory penalty.
- Revenue rose 3.2% to $30.12 billion but missed expectations by about $570 million.
- Shares dropped as much as 8% as trading operations underperformed.
Bank of America reported a 17% drop in third-quarter profit to $6.93 billion, or 91 cents per share, after a $1.2 billion penalty from U.S. regulators. Excluding the penalty, earnings per share would have been $1.08. Revenue rose 3.2% to $30.12 billion on an FTE basis but fell about $570 million short of expectations, mainly due to weak trading results. Shares fell as much as 8% in morning trading.
Trading and investment banking results
Fixed income trading revenue dropped 17% to $2.55 billion, about $450 million below the StreetAccount estimate, on weakness in mortgages, municipals and credit. Equities trading revenue rose 10% to $2.51 billion but was nearly $300 million short of expectations. Combined bond and stock trading fell 5%, contrary to CEO Brian Moynihan's September guidance of roughly flat results. Investment banking revenue declined 11% to $1.8 billion, in line with expectations. Net interest income grew 7.9% to $16.6 billion, slightly above the $16.53 billion estimate.
We got to do the work, and then the regulators look at it
— Brian Moynihan
Regulatory penalty and analyst concerns
The $1.2 billion penalty, announced Tuesday, stemmed from the bank's failure to report billions in suspicious transactions. On the earnings call, analysts questioned Moynihan about compliance costs and the share decline. JPMorgan analyst Vivek Juneja said, "Clearly you've had a huge charge this morning," adding that it was a reputational and confidence issue. CFO Alastair Borthwick attributed the bond trading drop to the sharp rise in interest rates. In a CNBC interview, Moynihan declined to give a timeline for resolving regulatory issues, saying, "We got to do the work, and then the regulators look at it." He added he was confident the bank was on the right course.
