Bank of America experienced a significant stock decline following the release of third-quarter earnings that included a substantial regulatory fine and underperformance in key business segments. The company’s shares dropped almost 5% following the announcement, as investors reacted to the penalty imposed by U.S. regulators and weaker-than-expected financial results.
The bank posted third-quarter profit of $6.93 billion, or 91 cents per share, representing a 17% decline from the prior year. Excluding the $1.2 billion regulatory penalty, which reduced earnings per share by 17 cents, the adjusted figure would have reached $1.08 per share. Companywide revenue increased 3.2% to $30.12 billion on an FTE basis, though this fell short of analyst expectations by approximately $570 million. The shortfall was primarily attributed to underperformance in trading operations. Fixed income trading revenue decreased 17% to $2.55 billion, roughly $450 million below estimates, with weakness evident in mortgages, municipals and credit activity. Equities trading revenue rose 10% to $2.51 billion but still missed expectations by nearly $300 million.
The combined trading results declined 5%, contradicting earlier guidance from CEO Brian Moynihan that suggested trading revenue would remain roughly flat. Investment banking revenue dropped 11% to $1.8 billion, which was approximately in line with expectations. Net interest income, a key profitability metric, rose 7.9% to $16.6 billion, slightly exceeding the estimate of $16.53 billion. Bank officials attributed the bond trading weakness to a significant rise in interest rates during the quarter.
The regulatory penalty, announced earlier in the week, centered on the company’s failure to report billions of dollars in suspicious transactions to Treasury authorities. This development raised concerns among analysts regarding management’s oversight of compliance and controls at the nation’s second-largest bank by assets. During the earnings call, multiple analysts pressed management on the implications of the penalty and questioned the company’s prior guidance regarding compliance cost management. CEO Moynihan stated he was confident the bank was on the correct course for remediation but declined to specify a timeline for resolving regulatory issues.
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