Bank of America on Wednesday posted a sharp profit decline after being hit with a $1.2 billion penalty by U.S. regulators, while revenue also disappointed after trading operations generated about $750 million less than expected.
Shares of the bank fell as much as 8% in morning trading.
Here’s what the company reported:
- Earnings per share: 91 cents, may not compare with $1.10 expected by LSEG
- Revenue: $30.12 billion vs. $30.69 billion expected by LSEG
The bank’s third-quarter profit fell 17% to $6.93 billion, or 91 cents a share. Excluding the penalty, which sapped income by 17 cents, EPS would’ve been $1.08 a share.
Companywide revenue rose 3.2% to $30.12 billion in the quarter, on an FTE basis, but that was below expectations by about $570 million, largely on misses from Wall Street trading operations.
Fixed income trading revenue dropped 17% to $2.55 billion on weakness in mortgages, municipals and credit activity. That is roughly $450 million below the StreetAccount estimate.
Equities trading revenue climbed 10% to $2.51 billion, but that was also below analysts’ expectations, by nearly $300 million.
The trading disappointment comes after CEO Brian Moynihan told analysts last month that trading revenue would be roughly flat; instead the combined bond and stock trading results fell by 5%.
Investment banking revenue dropped 11% to $1.8 billion, roughly in line with expectations and Moynihan’s September guidance.
Net interest income, a key profitability driver watched closely by Bank of America investors, rose 7.9% to $16.6 billion, slightly edging out the $16.53 billion StreetAccount estimate.
‘Worst in class’
In a research note published Wednesday, Wells Fargo analyst Mike Mayo called the firm’s capital markets results “easily worst in class” for the quarter.
The Treasury episode, in which U.S. regulators said the company failed to report billions of dollars in suspicious transactions, sparked questions as to whether Moynihan has a handle on controls at the second-biggest U.S. bank by assets.
On the company’s earnings call Wednesday, several analysts remarked on the sharp decline in Bank of America shares and pressed Moynihan about earlier guidance that compliance costs would be contained.
“Clearly you’ve had a huge charge this morning,” JPMorgan analyst Vivek Juneja said. “It’s not that you can’t absorb a billion. … But obviously it’s a reputational and confidence issue.”
Other analysts questioned management on the pace of future share repurchases and asked about the bank’s underperformance in trading. Management blamed the firm’s bond trading results on the sharp rise in interest rates during the period.
“It just happens when rates go up 85 basis points in a quarter, that tends not to be good for” credit and mortgage trading businesses, CFO Alastair Borthwick said.
‘The right course’
Later Wednesday in an interview with CNBC’s Leslie Picker, Moynihan didn’t commit to a timeline on the resolution of regulatory issues.
“We got to do the work, and then the regulators look at it,” Moynihan said. “So I don’t want to speculate about the precise timeline.”
The CEO added that he was “confident that we are on the right course to remediate everything.”
Moynihan took the helm in 2010 and spent the early years of his tenure making amends for mortgage-related abuses in the aftermath of the 2008 financial crisis.
The Treasury fine, announced on Tuesday, added 11th-hour intrigue to what was an otherwise fairly routine bank earnings week. On Tuesday, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo posted mixed results, with JPMorgan missing EPS and revenue estimates for the first time in years.
Correction: Bank of America reported third-quarter revenue on an FTE basis of $30.12 billion compared with LSEG estimates of $30.69 billion. An earlier version misstated the comparison.
