Core Points
- Bank of America's profits declined by 17% in the third quarter to $6.93 billion, equivalent to $0.91 per share.
- Revenues were about $570 million lower than market expectations, mainly due to the Wall Street trading business not meeting expectations.
- The combined revenue gap from fixed-income and stock trading business is approximately $750 million.
Previously, the company's CEO, Brian Moynihan, told analysts last month that transaction revenue would remain roughly unchanged; however, the actual combined revenue from bond and stock transactions actually decreased by 5%.
Bank of America released its financial report on Wednesday, showing a significant decline in profits. On one hand, the bank was penalized by U.S. regulatory authorities, and on the other hand, revenue from its trading division was $750 million lower than expected, resulting in performance that fell short of market expectations. The stock price fell by about 8.4% at the opening of trading.
Core Financial Data
- Earnings per share: $0.91; Reuters market expectation is $1.10
- Total revenue: $30.12 billion; Reuters market forecast is $30.69 billion
In the third quarter, net profit declined by 17% year-on-year, reaching $6.93 billion, with earnings per share at $0.91. The regulatory fines reduced earnings per share by $0.17; if the impact of the fines is excluded, adjusted earnings per share would be $1.08.
Based on the full-time employee statistics, the total revenue of the bank for this quarter increased by 3.2% year-on-year, reaching $30.12 billion. However, it is still about $570 million lower than market expectations, with the main drag coming from the Wall Street trading business.
Fixed-income trading revenue declined by 17% to $2.55 billion, with weak performance in mortgage loans, municipal bonds, and credit business, about $450 million lower than the expectations of StreetAccount institutions. Stock trading revenue increased by 10% to $2.51 billion, but also fell short of analysts' expectations, with a gap of nearly $300 million.
Trading performance fell short of expectations, contrasting with earlier guidance from executives: Moynihan stated last month that trading revenue would remain relatively stable, but in reality, the combined revenue from stock and bond trading declined by 5%.
Investment banking revenue decreased by 11% to $1.8 billion, which is basically in line with market expectations and also consistent with the performance guidance given by Moynihan in September.
“Last in the industry”
In a research report on Wednesday, Mike Mayo, an analyst at Wells Fargo, evaluated that the bank's capital markets division's performance this quarter was "among the worst in the industry."
Net interest income is a key profitability indicator that U.S. bank investors closely monitor. This quarter, it increased by 7.9% year-over-year to reach $16.6 billion, slightly exceeding the forecast of $16.53 billion given by StreetAccount.
The U.S. Treasury Department's penalty this time directly targets the issue of billions of dollars in suspicious transactions being reported missing by the bank. It is inevitable for the market to question whether Moynihan, as the second-largest bank by assets in the United States, truly has control over the group's internal control system.
Moynihan has been in charge of Bank of America since 2010, and in the early stages of his tenure, his main focus was on resolving mortgage-related violations that stemmed from the financial crisis of 2008. Now, however, there are concerns in the market about whether there are other hidden risks to risk management within the bank.
The huge fines announced by the Ministry of Finance on Tuesday added an unexpected variable to what was already a relatively dull week of financial reports from the banking industry. On the same day, JPMorgan Chase, Goldman Sachs, Citibank, and Wells Fargo also released their financial reports one after another; among them, JPMorgan Chase for the first time in many years experienced both earnings per share and revenue falling short of expectations.
