Bank of America BAC shares fell more than 5.5% in premarket trading Wednesday after the lender reported third-quarter earnings below Wall Street expectations, with a $1.21 billion regulatory penalty weighing on its financial results.
The bank reported a 3.2% increase in revenue to $30.12 billion, falling short of analysts’ expectations of $30.69 billion. Earnings per share came in at 91 cents, compared with the consensus estimate of $1.10.
Net income went down 17% to $6.93 billion for the quarter.
Excluding the regulatory penalty, however, Bank of America said it earned $8.1 billion, or $1.08 per share, with adjusted earnings per share increasing 4% from a year earlier.
The results put the spotlight on the bank’s underlying performance as the stock is down 11.93% in the last 3 months.
Net Interest Income rises 8%
Bank of America’s net interest income (NII) increased 8% year over year to $16.4 billion, supported by global market activity and the repricing of fixed-rate assets.
However, investment banking fees declined 11% from a year earlier to $1.8 billion, reflecting a mixed performance across the bank’s businesses.
Fixed-income trading revenue fell 17% year over year to $2.55 billion, primarily due to weakness in mortgage-related products, municipal securities and credit activity.
Equity trading provided a partial offset, with revenue rising 11% to $2.5 billion.
Overall sales and trading revenue declined 5% to $5.1 billion during the quarter.
“While investment banking and sales and trading revenues were lower, commercial lending grew in every client segment,” Bank of America CEO Brian Moynihan said in a statement accompanying the earnings release.
“Our momentum, reflected in growth in client deposits, wealth flows and consumer activity, supported solid earnings, balance-sheet growth and long-term shareholder value,” he added.
Why is Bank of America facing a $1.21 billion fine?
The earnings report followed the bank’s disclosure that it had been fined $1.21 billion by US regulators over widespread failures to identify potential money laundering and other illicit activity.
The penalty was linked to the bank’s failure to report more than $5 billion in suspicious activity to the government, including $1 billion associated with national security-related concerns and other priority illicit-finance risks.
US Treasury Secretary Scott Bessent highlighted the importance of compliance in a statement following the announcement of the penalty.
“When a bank of this size fails to meet its anti-money laundering and sanctions obligations, the consequences extend far beyond its own walls, exposing the entire US financial system to significant illicit finance risks,” Bessent said.
The penalty introduces another challenge for the bank as it seeks to maintain earnings growth and investor confidence.
Although its adjusted results were stronger than its reported figures, the revenue and earnings shortfalls contributed to a disappointing premarket reaction.
UBS Flags potential pressure on share buybacks
The regulatory action could also affect investor expectations around Bank of America’s capital allocation.
UBS analyst Erika Najarian said the penalty was likely to weigh on sentiment and raise questions about potential additional expenses and whether the bank could maintain its roughly $6 billion quarterly share buyback pace.
Share repurchases have been an important consideration for investors assessing the bank’s ability to return capital to shareholders while balancing regulatory obligations and other financial commitments.
Investors will now be assessing whether the bank can sustain its underlying earnings momentum while managing the financial and reputational implications of the regulatory action.
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