Bank of America had a rough day on Wall Street Wednesday, with its shares nosediving 7% after a lackluster third-quarter report. Profits took a hit, dropping 17% to $6.93 billion, or 91 cents per share. The main culprit? A hefty $1.2 billion penalty slapped on by U. S. regulators.
This penalty was announced amid concerns about the bank's risk management. Earnings per share were slashed by 17 cents thanks to this. Without that penalty, earnings would have been $1.08 per share. While the bank did see a 3.2% bump in overall revenue, reaching $30.12 billion, this was still about $570 million shy of what analysts expected, mainly due to lackluster trading performance.
Revenue from fixed income trading fell 17% to $2.55 billion, missing the StreetAccount estimate by roughly $450 million. Equities trading revenue rose 10% to $2.51 billion, but even this fell short of analyst predictions by nearly $300 million. CEO Brian Moynihan had previously assured that trading revenue would stay stable, but the combined bond and stock trading figures actually dipped 5%.
Investment banking revenue also took a hit, dropping 11% to $1.8 billion, though this was in line with expectations and Moynihan's earlier guidance. Wells Fargo analyst Mike Mayo didn't mince words, calling the bank's capital markets results "easily worst in class" for the quarter in a research note.
On the upside, net interest income—a key measure of profitability for the bank—climbed 7.9% to $16.6 billion, just beating the $16.53 billion forecast by StreetAccount. Still, the penalty has cast doubt on the bank's risk management strategies under Moynihan, who's been CEO since 2010.
The penalty announcement complicated what was otherwise a routine earnings week for big banks. On Tuesday, heavyweights like JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo reported mixed outcomes. Notably, JPMorgan missed earnings and revenue estimates for the first time in years.
This setback for Bank of America shines a light on its internal controls, raising questions about their effectiveness under Moynihan's leadership, especially given his past efforts to address mortgage-related issues post-2008 financial crisis. The bank's ability to manage risks remains under scrutiny as investors and analysts weigh the potential for more regulatory hurdles.
