Bank of America Shares Slide 8% on Record OCC Fine and Trading Miss – Moby COMMENTARY
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On Tuesday, JPMorgan missed on earnings and revenue for the first time in years. Somewhere in Charlotte, Brian Moynihan must have felt the rare sensation of superiority. Then the Treasury Department called.
Less than 15 hours before Bank of America reported, regulators hit it with $1.21 billion in fines for money laundering and sanctions violations, the biggest penalty the Office of the Comptroller of the Currency has ever levied. The details read like a compliance officer’s anxiety dream (or a Wells Fargo compliance officer’s reality): thousands of unreported payments totaling $4 billion, missed suspicious activity tied to companies that auction salvaged cars, which is a very specific way to get in trouble, and an investigators’ to-do list that peaked near 200,000 cases. Regulators first flagged the problems two years ago. Oh, BriMo.
The fine knocked 17 cents off earnings, leaving EPS at 91 cents against $1.10 expected. Take the fine out and you get $1.08, which… still misses. Profit fell 17% to $6.93 billion. Revenue rose 3.2% to $30.12 billion, about $570 million short of estimates, and the shares fell as much as 8% Wednesday morning.
The trading desks did the rest. Last month, Moynihan told analysts trading revenue would be roughly flat. It fell 5%. Fixed income dropped 17% to $2.55 billion, about $450 million under estimates, on weak mortgages, munis, and credit. Equities rose 10% to $2.51 billion and still missed by nearly $300 million. Longtime bank analyst and professional quote machine Mike Mayo called the capital markets results “easily the worst in class.”
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On the call with analysts, Moynihan defended himself with all the grace of Kelly Clarkson shopping Brooklyn. “We have agreed to call this a settlement and move forward,” BriMo offered, tacitly asking the analysts to please stop asking. Analysts kept asking anyway, politely and repeatedly, mostly about his earlier promise that compliance costs would stay contained.
Not everything should make Moynihan feel like the Eeyore of Wall Street that he so often is. Net interest income rose 7.9% to $16.6 billion, a hair over the $16.53 billion estimate. Investment banking fell 11% to $1.8 billion, the one number that landed where BriMo said it would.