Bank of America Reports Profit Decline and Regulatory Penalty with Shares Dropping Nearly 5%

The bank's earnings per share (EPS) were 91 cents, falling short of the $1.10 expected by LSEG. Total revenue was reported at $30.12 billion, which is below the $30.69 billion analysts had forecasted. The third-quarter profit declined 17% from the previous year to $6.93 billion. If the penalty had not been imposed, EPS would have been reported at $1.08.

On a companywide level, revenue rose 3.2% to $30.12 billion during the quarter, although this fell short of expectations by approximately $570 million due to weaker performance in Wall Street trading operations. Fixed income trading revenue saw a 17% decrease to $2.55 billion, falling about $450 million below estimates. Conversely, equities trading revenue increased 10% to $2.51 billion but still missed analysts' expectations by nearly $300 million.

This disappointing trading performance comes after CEO Brian Moynihan had previously indicated that trading revenue would remain flat; combined bond and stock trading results ultimately declined by 5%. Additionally, investment banking revenue dropped 11% to $1.8 billion, aligning closely with expectations and Moynihan's guidance from September.

Bank of America’s net interest income, a critical measure of profitability for its investors, rose 7.9% to $16.6 billion, slightly exceeding the $16.53 billion estimate.

In a research note released Wednesday, Wells Fargo's analyst Mike Mayo criticized the capital markets results, labeling them as "easily worst in class" for the quarter. The bank is currently facing scrutiny over a Treasury issue where regulators stated that it failed to report billions of dollars in suspicious transactions, raising concerns about Moynihan’s ability to manage controls at the second-largest U.S. bank by assets.

During the earnings call, several analysts highlighted the significant drop in Bank of America's shares and questioned Moynihan regarding previous guidance about compliance costs. JPMorgan analyst Vivek Juneja noted the reputational impact of the penalty, suggesting that while the bank can absorb the hit, it poses a confidence issue.

Other analysts probed management regarding share repurchases and the bank's overall trading performance, with management attributing poor bond trading results to a sharp increase in interest rates during the quarter. CFO Alastair Borthwick explained that rising rates negatively impact credit and mortgage trading businesses.

Later, in an interview with CNBC, Moynihan did not provide a timeline for resolving the regulatory issues, stating, "We got to do the work, and then the regulators look at it." He expressed confidence in the efforts being made to remedy the situation. Moynihan has been leading the bank since 2010, focusing on rectifying issues stemming from mortgage-related practices linked to the 2008 financial crisis.