Profit Hit by Treasury Penalty
Bank of America reported a sharp decline in third-quarter profit after the U.S. Treasury Department imposed a $1.2 billion penalty on the company. Net income fell 17% to $6.93 billion, or 91 cents per share. Excluding the penalty, which reduced earnings by 17 cents per share, earnings per share would have been $1.08. The bank's shares dropped more than 4% in premarket trading following the announcement.[S1][S2][S3][S4][S5][S6][S7][S8]
Revenue for the quarter rose 3.2% to $30.12 billion, but that figure fell short of expectations by roughly $570 million. The miss was driven largely by weaker performance in Wall Street trading operations. Fixed income trading revenue declined 17% to $2.55 billion, about $450 million below the StreetAccount estimate, on softness in mortgages, municipals, and credit activity. Equities trading revenue increased 10% to $2.51 billion, but still came in nearly $300 million below analysts' expectations.[S1]
Control Questions Resurface for CEO Moynihan
U.S. regulators said the bank neglected to flag billions of dollars in questionable transactions, which led to the Treasury Department's financial punishment. Attention is now likely to turn to whether Brian Moynihan, the chief executive, maintains adequate oversight of internal safeguards at the nation's second-largest bank by assets. Moynihan became CEO in 2010 and devoted his first years to repairing damage from mortgage abuses tied to the 2008 financial crisis. The fresh penalty suggests further risk-control weaknesses could still surface.[S1]
The Treasury's action brought unexpected drama to what had otherwise been an unremarkable stretch of bank earnings reports. A day earlier, JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo each posted results that drew a mixed reception, and JPMorgan fell short of both earnings-per-share and revenue projections for the first time in several years.[S1]
