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Bank of America tumbles after settlement charge dents quarterly profit
Bank of America shares tumbled 4.8% on Wednesday after a regulatory settlement charge and softer investment banking fees left third-quarter revenue and adjusted profit below analyst forecasts.
Quick Read
- Bank of America stock fell 4.8% after third-quarter revenue and adjusted profit missed analyst forecasts.
- A regulatory settlement charge and lower investment banking fees were the main drags on results.
- Net interest income, consumer banking and wealth management grew, and card spending held up.
- The bank's CFO said much of the work under its consent order is complete and deal pipelines remain strong.
What did Bank of America report?
Bank of America (NYSE: BAC) shares tumbled 4.8% on Wednesday to finish at $51.39. They had ended the prior session at $53.96.
Why it matters: Third-quarter revenue grew from a year earlier but fell short of the analyst consensus, the average forecast that acts as the bar to beat. Adjusted earnings per share, or profit divided by the number of shares, also missed. Net income declined from a year earlier, the bank reported.
Why did profit fall short?
A charge to settle with regulators weighed on the results. It pushed expenses higher. Chief Financial Officer Alastair Borthwick said much of the work under its consent order, a formal regulatory order to fix problems, is done.
Investment banking fees also dropped. That business earns money advising on deals and helping companies raise funds. Earnings in Global Markets, the trading unit, fell as well, with weaker revenue in mortgages, municipal securities and credit.
Was anything in the results stronger?
Several parts of the bank grew. Net interest income, what the bank earns on loans minus what it pays on deposits, rose from a year earlier. Consumer banking and wealth management earned more too.
Customers kept spending on debit and credit cards, and average loans grew. Borthwick said investment banking deal pipelines remain strong. Set against that, the bank's CET1 ratio, a measure of its capital cushion, declined from a year earlier.
What comes next?
What’s next: The miss could put more attention on results from other large banks. The financial sector fund XLF fell 0.5% on Wednesday. The S&P 500 slid 1.1%.
The next scheduled checkpoint for banks broadly is the Federal Reserve's interest-rate decision on Oct. 28. Rates shape what banks earn on loans and pay on deposits.
For readers
What it could mean for you: People who own Bank of America shares directly felt the full drop. A central question for them is whether the settlement charge was a cleanup cost. Borthwick said much of the consent-order work is done. If so, later results might carry less of that expense. Weaker investment banking and trading revenue could still weigh on profit. People whose index funds hold the bank own it as a small slice, so the effect on them may be more modest.
Questions and answers
Why did Bank of America stock fall?
The shares tumbled 4.8% on Wednesday after third-quarter revenue and adjusted earnings per share came in below the analyst consensus. A regulatory settlement charge and weaker investment banking fees weighed on results.
What was the Bank of America settlement charge for?
The bank recorded a charge to settle with regulators. Chief Financial Officer Alastair Borthwick said the bank had worked with regulators and that much of its consent-order work is done.
Did any Bank of America businesses grow last quarter?
Yes. Net interest income rose from a year earlier, and consumer banking and wealth management earned more. Card spending and average loans also grew.
The numbers
| Bank of America (BAC) price | $51.39 |
|---|---|
| Bank of America (BAC) change | −4.76% |
| S&P 500 change | −1.11% |
| 10-year Treasury yield | 5.19% |
Wednesday’s close
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Not investment advice.
