Markets
A $1.2 Billion Penalty and a Trading Miss Sent Bank of America to Its Lowest Close Since May
Bank of America earned 91 cents a share, or $1.08 before a regulatory charge of about $1.2 billion, short of estimates. The stock opened 7.7% lower, recovered part of the drop and closed down 4.76% at $51.39.
Of the six big US banks that reported this week, Bank of America had the clearest problems, and the market treated it that way. The stock opened at $49.83 on October 14, 7.7% below Tuesday's close of $53.96, and fell as low as $49.26 before buyers came back. It closed at $51.39, down 4.76%, its lowest close since May 28. About 118 million shares changed hands, 2.6 times Tuesday's volume.
The quarter had two problems. The first was a charge of roughly $1.2 billion for a regulatory settlement related to the bank's anti-money-laundering and sanctions compliance programmes. It cut reported earnings to $0.91 a share and net income to $6.93 billion, 17% less than a year earlier. Excluding the charge, earnings were $1.08 a share, a little below the roughly $1.10 analysts expected.
The second problem was trading. Fixed-income and equity trading revenue together came in about $750 million below forecasts, and total revenue of about $30.1 billion was also below estimates. That is the opposite of what happened at Goldman Sachs and Morgan Stanley, where stock trading was the strongest part of the quarter.
The core lending business was fine. Net interest income — the gap between what the bank earns on loans and pays on deposits — rose 8% from a year earlier to $16.6 billion, and deposits climbed to about $2 trillion. The intraday recovery of more than 4% from the low suggests some investors read the penalty as a one-off and the lending numbers as the more lasting signal.
Elsewhere in the sector the picture was mixed. JPMorgan rose 1.16% after Tuesday's fall, Wells Fargo added 0.20%, and Citigroup lost another 1.81%. The Financial Select Sector SPDR (XLF) fell 0.55% and the regional bank ETF (KRE) 0.75%.