A $1.2 Billion Penalty Cuts Into Bank of America's Quarter

Bank of America reported its third-quarter results on Wednesday with a $1.2 billion federal penalty sitting on top of them. The shares fell 5.9% in afternoon trading, to roughly $50.75 from Tuesday’s $53.96 close, after the money-laundering fine flowed straight through the lender’s profit. The drop was its steepest in months.

Ninety-one cents reported, $1.08 without the charge

Bank of America earned $6.93 billion in the three months through September, down from $8.33 billion a year earlier. On a per-share basis that worked out to 91 cents, short of the $1.10 analysts had modeled. Strip out the penalty and the picture steadies: adjusted profit was $8.1 billion, or $1.08 a share, a shade under what analysts expected. That gap is the fine. Because the charge cannot be deducted from taxes, it carved 17 cents off reported earnings in one stroke.

The operating lines held up better than the headline number suggested. Revenue rose 3% to $30 billion. Net interest income, the spread between what the bank earns on loans and pays out on deposits, climbed 8% to $16.4 billion. Consumer banking, the company’s largest business, brought in $11.57 billion, up 4% from a year earlier. Investment banking fees fell 11%.

What the $1.2 billion covers

The penalty landed Tuesday. That was a day before the results. The Treasury’s Financial Crimes Enforcement Network assessed $1.2 billion, and the Office of the Comptroller of the Currency added a $750 million civil penalty it called its largest ever, credited within the larger figure. A separate settlement with the Office of Foreign Assets Control resolved 475 apparent sanctions violations for $11.6 million. Regulators said the bank admitted willful violations of the Bank Secrecy Act, among them a failure to report more than $5 billion in suspicious transactions on time. The bank said it has made progress on the fixes its regulators demanded and means to finish the work.

A fresh low after a long slide

Wednesday’s selling did not come from nowhere. The stock had already dropped about 18% over the prior 30 sessions and closed Tuesday at its weakest level since the spring. The afternoon decline, on volume running at twice the 20-day average, carried it to roughly $50.75, a new low for at least three months and some 22% below its 52-week high of $65.23. In the past three months of trading, no single session had cut deeper.

The pressure was not Bank of America’s alone. Broad indexes fell Wednesday after a hotter-than-expected inflation reading, with the S&P 500 down more than 1% and the Nasdaq off nearly 2%. Rate-sensitive financials sat near the center of that move.

Where the remediation goes from here

The quarter settled one question and opened another. The fine is now in the past. What remains unsettled is the cost and the timeline of the compliance overhaul the consent orders require, and whether the enforcement action brings any limits on how the bank operates. Its fourth-quarter report, due in January, will be the first look at earning power without a billion-dollar charge sitting on top of it.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.